CenturyTel and Embarq to marry in $11.6B deal

CenturyTel Inc.’s board of directors gave the company the green light to acquire Embarq Corp. in a projected $11.6 billion transaction. CenturyTel will also acquire $5.8 billion of Embarq’s debt.
If the deal goes through, Embarq shareholders would own 66% of the combined company, while CenturyTel would own 34%.
Together, the two communications companies cover 33 states, around 8 million access lines, 2 million broadband customers and 400,000 video customers. If the two join forces, the combined pro forma revenue is expected to reach near $9 billion and the transaction is predicted to bring in $400 million a year during the first three years of operation.
“This transaction is a significant win for the shareholders of CenturyTel and Embarq, as well as our respective employees, customers and the communities we serve. Embarq has invested in building a base of high-quality assets positioned to create long-term value. We expect that bringing Embarq and CenturyTel together will accelerate both companies’ strategic plans, diversify our revenues and provide us with the expanded networks, expertise and financial resources to build long-term value for shareholders. I am confident that the talent and dedication of CenturyTel and Embarq employees will enable us to quickly realize the significant potential inherent in this combination,” said Glen Post III, CenturyTel’s Chairman and CEO.
Combined company senior leadership will be comprised of both CenturyTel and Embarq executives and corporate headquarters will be in Monroe, Louisiana with a maintained presence in Overland Park, Kansas, home of Sprint Nextel. When Embarq separated from Sprint Nextel in 2006 and Dan Hesse left his post as CEO of Embarq to become CEO of Sprint Nextel, Embarq was still acting as a mobile virtual network operator of Sprint’s wireless services. A spokesman for Embarq, however, said they are no longer doing that.
An Ovum analyst questioned whether the new entity can be successful without a wireless play.
“Without wireless or major market density of customers, this combined entity only has a few places to go for innovation or growth,” wrote Mike Sapien, an Ovum principal analyst, in a report. “Given that the combined entity does not have a major wireless offering, it will be restricted to roughly half of the new emerging services and growth opportunity.”
Neither independent local exchange carrier offers wireless service.
“Wireless service growth may be approached through two different approaches that may develop in these markets,” Ovum’s Sapien noted. “This could include a creative MVNO service based on the need for some wireless offerings, as well as offering wholesale backhaul local services to the major cell providers. The wireless backhaul local services may be the best and most profitable way to share in the wireless market growth, albeit wholesale and indirect.”
The transaction is subject to regulatory approval and both companies expect the deal to close during the second quarter of 2009.
Article updated Nov. 4 to include analysis.