CenturyLink Inc. (CTL) finally completed its $12 billion merger with Denver-based Qwest Communications following all the necessary approvals and regulatory clearances. The merger created the third-largest landline operator in the U.S.
The combined company will operate under the CenturyLink brand. However, it will take several months to fully integerate the two brands. Until then, the Qwest brand will continue operating in its former markets.
The newly formed company will still be headquartered in Monroe but will maintain a key operational presence in Denver. The current CenturyLink board members as well as four board members of Qwest will form the board of directors of the combined company.
As per the agreement, Qwest shareholders will receive 0.1664 shares of CenturyLink stock for each share of Qwest stock. In addiiton, Qwest shareholderswill receive cash in respect of fractional shares.
The merger is expected to be immediately accretive to CenturyLink’s free cash flow and generate cost synergies of roughly $625 million over 3−5 years. Key drivers of these synergies include reduction of corporate overhead, elimination of duplicate functions and systems as well as increased operational efficiencies.
The combination will also create a 190,000 route-mile fiber network, which will provide greater scale, scope and opportunities. The new CenturyLink will now have a competitive advantage over its two major rivals, AT&T Inc. (T) and Verizon Communications Inc. (VZ), with greater scale and operational efficiency in a mature U.S. home-phone market.
We see this merger as yet another consolidation attempt by CenturyLink. In July 2009, the company acquired the fourth largest U.S. local telephone service provider Embarq Corporation, which was a spin-off from Sprint Nextel Corp. (S). The integrated company has emerged as one of the largest rural telecom carriers by access lines.
In 2010, CenturyLink generated about $7 billion in revenues. With the Qwest merger, the annual revenue is expected to be more than double at roughly $19 billion with 15 million phone lines and operations across 37 states. CenturyLink continues to pay an anuual dividend $2.90 per share to its shareholders.
We are currently maintaining our long-term Neutral rating on CenturyLink with the Zacks #3 (Hold) Rank.
CENTURYTEL INC (CTL): Free Stock Analysis Report
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