CenturyLink and Qwest announce merger

US based telcos CenturyLink and Qwest have announced plans to merge their businesses, stating that their boards of directors have approved a definitive agreement by which CenturyLink will acquire Qwest in a tax-free, stock-for-stock…

US based telcos CenturyLink and Qwest have announced plans to merge their businesses, stating that their boards of directors have approved a definitive agreement by which CenturyLink will acquire Qwest in a tax-free, stock-for-stock transaction.

CenturyLink provides voice, broadband and video services to consumers and businesses in 33 states. Qwest has a national fibre-optic network, through which it offers internet, digital home phone and TV services.

Under the terms of the agreement, Qwest shareholders will receive 0.1664 CenturyLink shares for each share of Qwest common stock they own at closing.

Upon deal closure, CenturyLink shareholders are expected to own approximately 50.5% and Qwest shareholders approximately 49.5% of the combined company.

The telcos state that based on the closing stock price of CenturyLink on April 21 2010, the per share consideration to be received by Qwest shareholders would be equivalent to US$6.02 of CenturyLink stock, which represents a premium to Qwest shareholders of approximately 15% over Qwest’s closing stock price on April 21, reflecting an enterprise value for Qwest of approximately US$22.4bn, including the assumption of US$11.8bn of Qwest net debt outstanding as of December 31 2009.

CenturyLink CEO and president Glen F. Post III said of the deal: “We believe the combination of CenturyLink’s and Qwest’s employees, assets and service areas will provide us greater scale, scope and expertise and will provide significant benefits for shareholders, customers and our communities. 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.”

The two US telcos state that they expect the transaction to be accretive to CenturyLink’s free cash flow per share, excluding integration costs, immediately following the close of the sale, and add that the transaction is expected to generate annual operating and capital synergies of approximately US$625m when fully recognised over a three to five year period, following the close of the transaction. They further add that this combination will result in a company whose enterprise business will be a significant contributor to its growth which along with its consumer business, will allow it to offer broadband products and services over its networks.

As of December 31 2009, CenturyLink and Qwest had a presence in and served 37 US states, with some five million broadband customers, 17 million access lines, 1, 415, 000 video subscribers and 850,000 wireless consumers.

The combined company’s senior management is expected to be comprised of executives from both telcos. It has already been announced that William A Owens will take over as chairman of the board, Glen F Post III will serve as CEO and president, R Stewart Ewing will be CFO, Karen A Puckett has been appointed COO and Christopher K Ancell will be the president of the business markets group. Following deal closure, the board of directors of CenturyLink will add four members from the current Qwest board, including Edward A Mueller, current Qwest chairman and CEO.

The transaction is still subject to regulatory and shareholder approvals and is expected to close in H1 2011, due to it needing the approval of some three dozen state regulatory bodies and the Federal Communications Commission.

Barclays Capital, Evercore Partners, and J.P. Morgan Securities acted as financial advisors and Wachtell, Lipton, Rosen & Katz and Jones Walker Waechter Poitevent Carrere & Denegre L.L.P. acted as legal advisors to CenturyLink.

Lazard, Deutsche Bank, and Morgan Stanley & Co. and Perella Weinberg Partners LP acted as financial advisors to Qwest while Skadden, Arps, Slate, Meagher & Flom LLP and Wilmer Cutler Pickering Hale & Dorr LLP acted as legal advisors.