By Lisa Kerner
Charlotte, N.C., Oct. 27 - CenturyTel, Inc. agreed to acquire Embarq Corp. in tax-free, stock-for-stock transaction worth a reported $5.8 billion. In addition, CenturyTel will acquire $5.8 billion of Embarq's debt, it was announced on Monday.
Both companies' boards of directors approved the merger, which will create one of the leading communications companies in the United States, according to a CenturyTel news release.
Under the terms of the definitive merger agreement, Embarq shareholders will receive 1.37 CenturyTel shares, valued at $40.42 based on Friday's closing price, for each share of Embarq common stock they own.
Bank of America, Barclays Bank plc, Morgan Stanley Senior Funding, Inc. and SunTrust Robinson Humphrey have committed to refinancing Embarq's bank debt at closing, CenturyTel said.
The merger agreement includes termination rights for both companies, according to a form 8-K filed with the Securities and Exchange Commission.
Under specified circumstances, CenturyTel would pay a termination fee of $140 million to Embarq, or Embarq would pay a $200 million termination fee to CenturyTel, the filing noted.
The transaction is set to close in the second quarter of 2009 and will generate synergies of approximately $400 million annually within the first three years of operation, according to CenturyTel.
CenturyTel said it expects the transaction to be accretive to its free cash flow per share in 2010, the first full year following the expected closing.
Executives from both CenturyTel and Embarq will lead the combined company, which will operate out of CenturyTel's Monroe, La., headquarters location. The company will also maintain a "significant presence" in Overland Park, Kan., where Embarq is based.
Glen F. Post III, CenturyTel's chairman and chief executive officer, will be CEO of the new company.
Embarq CEO Tom Gerke will be executive vice-chairman of the board.
William A. Owens, currently non-executive chairman of the Embarq board, will be the non-executive chairman of the combined company, and Harvey Perry will continue as non-executive vice-chairman.
The board of directors of the yet-to-be-named combined company will be composed of eight current CenturyTel board members and seven members from the current Embarq board.
CenturyTel said that once the merger is complete, it intends to maintain an investment-grade credit rating and return a "substantial portion" of the combined company's free cash flow to shareholders through share repurchase programs.
Embarq and CenturyTel said they will continue their current dividend policies through the closing.
CenturyTel suspended its current share repurchase program pending completion of the transaction, the release said.
"We expect that bringing Embarq and CenturyTel together will accelerate both companies' strategic plans, diversify our revenues and provide us with the expanded networks, expertise and financial resources to build long-term value for shareholders," Post said in the release.
"This transaction is expected to deliver immediate value to our shareholders and provide significant growth potential via a combined company that is better positioned to compete and win in an increasingly competitive marketplace," Gerke added.
CenturyTel is being advised by Barclays Capital and Morgan Stanley, along with Banc of America Securities LLC, Merrill Lynch & Co. and Wachovia Capital Markets, LLC.
Embarq's financial adviser is JP Morgan.
CenturyTel provides communications, high-speed internet and entertainment services in small-to-mid-size cities through its broadband and fiber transport networks.
Embarq provides local and long distance voice, data, high-speed internet, satellite video, wireless and other communications-related products and services to consumer and business customers in the United States.
| Acquirer: | CenturyTel, Inc.
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| Target: | Embarq Corp.
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| Announcement date: | Oct. 27
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| Transaction total: | $5.8 billion
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| Price per share: | 1.37 CenturyTel shares
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| Termination fee: | $140 million, $200 million
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| Expected closing: | Second quarter of 2009
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| Stock price for acquirer: | NYSE: CTL: $29.50 on Oct. 24
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| Stock price for target: | NYSE: EQ: $29.00 on Oct. 24
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