A day after CenturyTel announced plans for a $22 billion takeover of Denver-based Qwest, shares of both companies dropped nearly 2 percent as analysts raised concerns about the integration of what would be the largest telecommunications merger in years.
At least three analysts downgraded CenturyTel stock Friday, questioning whether the rural phone company is ready for another acquisition less than a year after an $11.6 billion merger with Embarq.
Fitch Ratings put the Monroe, La.-based company on negative credit watch, noting that “CenturyTel’s service territory will take on an increasing urban character, and will thus be exposed to more intense competitive forces and higher levels of technology substitution.”
The value of the stock swap — tied to CenturyTel’s share price — dropped to $9.9 billion Friday from $10.6 billion Thursday when it was announced. CenturyTel stock has fallen 5 percent from $36.20 to $34.33 since the deal became public. Qwest stock closed Friday at $5.28, down 9 cents.
Under the deal, Qwest shareholders will receive 0.1664 CenturyTel shares for each Qwest share. CenturyTel, which began operating as CenturyLink after acquiring Embarq, will also assume $11.8 billion in Qwest debt.
The transaction, expected to close by April 2011, includes a provision that could require either company to pay a $350 million breakup fee.
In response to an analyst question about the timing of the deal Thursday, CenturyTel chief executive Glen Post said the integration of Embarq is “going very well” and noted that the Qwest deal isn’t expected to close for another 12 months.
A final decision hasn’t been made on a name for the combined company, which will be based in Monroe. But Post, who will remain CEO, said he is leaning toward using the CenturyLink brand for residential services and would consider keeping the Qwest name for business services.
Post brushed off a question about whether Monroe has a deep enough talent pool for the combined company, which will employ about 50,000 and serve 17 million landlines in 37 states as the nation’s third-largest local phone-service provider.
“We attract the talent we need, and even though it’s a small town, we have very low turnover, and it’s a great place to live,” he said.
Post, who hasn’t been made available to The Denver Post, told CenturyTel employees in a letter that the merger “will provide us greater scale, scope and expertise.”
The deal is subject to stockholder and regulatory approval.
Andy Vuong: 303-954-1209, avuong@denverpost.com or
