CenturyLink and Qwest to Merge in $10.6 Billion Telecom Deal
Under the deal announced Thursday morning, Qwest shareholders will receive the equivalent of $6.02 a share in CenturyLink stock -- representing a 15% premium over Qwest's Wednesday closing price. The transaction details call for Qwest shareholders to get 0.1664 in CenturyLink shares for each share of Qwest they own.
CenturyLink's transaction is valued at $10.6 billion, with an additional assumption of a whopping $11.8 billion in outstanding net debt owed by Qwest. The merger agreement calls for the two companies to come together as virtual equals, with CenturyLink owning a 50.5% stake in the combined company and Qwest 49.5%.
"This combination will enhance our ability to deploy innovative IP products and high-bandwidth services to business customers, expand broadband availability and speed to consumers, and offer superior, differentiated video products, said CenturyLink CEO Glen Post III in a statement.
A combined CenturyLink-Qwest would cover local markets in 37 states, reaching roughly 5 million broadband customers, 1.4 million video subscribers and 850,000 wireless customers.
Local exchange carriers have been feeling the urge to merge in response to the growth of cable and wireless firms, which have been eating into their business, leaving them with declining revenues from their core voice-service product. At the same time, telecom carriers are jumping into services traditionally offered by cable companies.
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The transaction, which is subject to shareholder and regulatory approval, is expected to close in the first half of 2011. Once it's a done deal, CenturyLink expects it to immediately boost Wall Street's expectations of its free cash flow per share, excluding integration costs. The merger is anticipated to generate annual cost savings of approximately $625 million over a three- to five-year period.
"This transaction is compelling for our shareholders, who will benefit from an immediate premium for their shares, an increase of approximately 50 percent in the annual dividend, and the opportunity to participate in the upside potential of the combined company through their ownership of CenturyLink stock," Qwest CEO Edward Mueller said in a statement.
Once the deal closes, Qwest shareholders will ride on the coattails of CenturyLink's annual dividend policy, which currently pays $2.90 a share.
With any merger, it matters who is running the ship. CenturyLink will still be headed by Post, with Mueller and three other Qwest board members joining the CenturyLink board.
Shares of Qwest were up 5.92% to $5.55 a share in premarket trading, while CenturyLink parent CenturyTel was down 3.31% to $35 a share.