CenturyTel Qwest deal one of the biggest in history

close up full frame detail of telephone

CenturyTel made a bid for Qwest valued at 22 billion, one of the biggest deals in telecom history. Flickr photo.

CenturyTel and Qwest announced plans for CenturyTel to buy Qwest in a $10.6 billion stock swap instead of cash now. The deal will be one of the biggest telecommunications deals in history if it goes through. The combination of CenturyTel, Inc., the fifth largest local phone company, and Qwest Communications, the third largest, creates a more competitive entity in a shrinking landline market. However, CenturyTel Qwest would still be a minnow among the telecom sharks AT&T and Verizon, companies that are stronger by having both landline and wireless businesses.

CenturyTel Qwest debt consolidation

It its agreement to buy Qwest, CenturyTel, formerly known as Centurylink, will take over $11.8 billion in Qwest debt, making the merger worth about $22.4 billion, one of the biggest deals in telecom history. The new company will be based at CenturyTel’s headquarters in Monroe, La. Qwest’s current headquarters is in Denver. Both companies have been shedding jobs and the Denver Business Journal said that analysts expect more job cuts as CenturyTel and Qwest consolidate operations.

CenturyTel Qwest: bigger fish in shrinking pond

Qwest provides land line service in 14 primarily Western states. Financial maneuvers during the Internet boom, including an ill-fated attempt to outbid Verizon for MCI, left Qwest in need of debt repair, making it vulnerable to purchase, even though it is larger than CenturyTel. U.S. landlines are shrinking by about 10 percent per year as consumers rely more on cellphones and cable. Neither Qwest nor CenturyTel own wireless networks that compensate for the loss of landlines, as AT&T and Verizon do. The CenturyTel Qwest merger is intended to make the combined company stronger as a business telecom provider and expand its consumer broadband business.

CenturyTel Qwest deal breaker?

The CenturyTel/Qwest deal has complications. Levi & Korsinky LLP, a law firm specializing in representing victims of securities fraud and other forms of financial malfeasance, is investigating the board of directors of Qwest, according to a press release from BusinessWire published Thursday at marketwatch.com. Levi & Korsinsky suspects that the deal may unlawfully harm Qwest stockholders in connection with the Qwest board’s effort to sell to CenturyTel, Inc. The investigation concerns whether the Qwest board failed to adequately shop Qwest before making the deal, and that CenturyTel may be underpaying for Qwest shares.

CenturyTel Qwest shareholder details

When the deal closes, CenturyTel shareholders will own about 50 percent of the new company, and Qwest shareholders will own about 49.5 percent of the company. Qwest stockholders will get 0.1664 shares of CenturyTel for every Qwest share they now own. Based on the CenturyTel closing price Wednesday of $5.24, Qwest shareholders will get per-share consideration equivalent to $6.02 of CenturyTel stock.

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