The Public Utility Commission of Oregon, the last of the 21 state regulators approved the merger between Qwest Communications (Q) and CenturyLink Inc. (CTL). This follows the recent approval from Federal Communication Commission.
The merger had already received approval shareholders of both companies and 20 other state regulators. It is expected to be completed by April 1 this year.
The Oregon regulators gave their approval after the combined company agreed to certain terms, including an investment of at least $45 million to upgrade broadband access across Oregon over five years.
Both companies currently have a Fiber to the Node (FTTN) based approach to broadband. The new entity will have 5.4 million broadband Digital Subscriber Line (DSL) customers in total. The merger will create an 180,000-route-mile national fiber network, which will enable the delivery of a mix of diverse service and product offerings.
Qwest remains the third-largest U.S. landline phone company, followed by CenturyLink in the fourth position. Currently, CenturyLink has an approximately 2.4 million broadband customer base, 6.5 million access lines and around 628,000 satellite video subscribers. Qwest caters to approximately 2.9 million broadband customers, 8.9 million access lines, more than 1 million video subscribers and 1 million wireless customers.
However, both CenturyLink and Qwest remain challenged by hemorrhaging landline voice businesses and are contending in an industry that is consolidating rapidly. Competition is intense for both these operators, with Tier-1 national carriers such as AT&T (T) and Verizon (VZ) offering a myriad of communication services such as fixed voice, wireless, broadband and video. Additionally, a shifting customer base from the ATM-based DSL service to IP-based VDSL2 service as Qwest focuses on developing a FTTN network that could weigh on the combined company.
The agreement, which was signed on April 21, 2010, stated that CenturyLink will acquire Qwest for $22 billion including $10 million of stock swap. Upon the completion of the merger, Qwest will operate as a wholly owned subsidiary of CenturyLink. Qwest and CenturyLink shareholders respectively will own 49.5% and 50.5% of the combined company.
The merger will provide Qwest shareholders substantial benefit in the form of a roughly 50% dividend hike from the current level. Moreover, significant synergies, deleveraging of balance sheet, a strong management team and a talented employee base should boost investor confidence in the stock.
We are currently maintaining our long-term Neutral recommendation on both CenturyLink and Qwest with Zacks Rank #4 (Sell) and Zacks Rank #3 (Hold), respectively.
CENTURYTEL INC (CTL): Free Stock Analysis Report
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