The U.S. communications landscape may be poised to change with the country’s No. 3 carrier, Qwest, having agreed to be acquired by CenturyLink, the nation’s fifth largest telecommunications player, in a deal valued at $22.4 billion.
Under terms of this morning’s proposed purchase, Qwest (NYSE: Q) shareholders will receive CenturyLink (NYSE: CTL) stock in a transaction that values Qwest shares at a 15 percent premium over its closing stock price on April 21, for a total of about $10.6 billion in stock. CenturyLink will also assume $11.9 billion worth of Qwest’s outstanding debt, it said.
The purchase is subject to regulatory approvals. The two companies expect the deal to close in the first half of 2011.
CenturyLink President and CEO Glen Post, III, will remain chief executive of the combined company. Current Qwest CEO Edward A. Mueller will remain as a member of the combined company’s board of directors.
“This is a truly transformative transaction,” Post said during a morning conference call discussing the deal. “Upon completion, CenturyLink will be a national communications company with an enterprise business that we expect to be a significant contributor to our growth.”
“The combined company will be more competitive with significantly increased scale and scope,” he said, adding that the company will operate in 37 states, serving 5 million broadband customers and 17 million access lines. On the infrastructure side, Post noted that the company will be have a 173,000-mile fiber network and deliver enterprise services to 95 percent of Fortune 500 companies.
According to Post, the new combined entity will be able to recognize significant network synergies, though he added that work remains to be done before he can specifically identify all of them.
Work also is yet to be done in securing the necessary approvals before the deal can move forward. Post explained that the transaction will require approvals from some of the 37 states in which the combined entity will operate.
“We do think most states will look positively on the transaction,” Post said.
The Federal Communications Commission will also have to approve the deal, which Post also said he does not expect to be a problem.
“We do believe we have an outstanding network today,” Post said. “We’ll work with the FCC and other regulators to go through this process. But I think we’ve done a very good job of bringing broadband services to a lot of areas in the U.S. over the last few years.
Qwest follows Embarq merger
The move is the second major transaction CenturyLink has undertaken in recent years. The company emerged in its current state following the merger of CenturyTel and Embarq in 2008 and is still in the process of integrating the two companies’ networking assets.
Post noted that to date he’s happy with the current state of Embarq integration. With some twelve months to go until the Qwest deal closes, Post added that he expects his company will be able to successfully integrate Qwest operations as well.
What’s in a name?
As for what is to happen to the Qwest brand name following the acquisition by CenturyLink, Post said the decision hasn’t been finalized — though he has some ideas.
“My initial view is we will lean towards the CenturyLink brand in the mass consumer markets,” Post said. “But we will consider in the business markets group if we should stick with Qwest, which has strong brand recognition there. We will make those decisions in the weeks and months ahead.”
Additionally, while Post didn’t rule out further acquisitions in the carrier space, he did say the company is currently concentrating on digesting its two most recent purchases.
“We’re not going to go out and buy shirt factories — we’re in the communications business,” Post said. “We’re going to be focused on completing the Embarq integration and the Qwest business. We’re going to be focused on these transactions.”