CenturyTel says proposed Embarq acquisition would improve ability to invest, return cash to shareholders

By Jennifer Lanning Drey

Portland, Ore., Oct. 27 - CenturyTel, Inc. will be better positioned to take advantage of investment opportunities and return cash to shareholders following the closing of its proposed stock-for-stock acquisition of Embarq Corp., Glen F. Post III, chief executive officer of CenturyTel, said during a Monday conference call held to discuss the transaction.

The transaction is expected to be accretive to CenturyTel's free cash flow per share in 2010, and the combined company is expected to have a pro forma leverage ratio of 2.1 times EBITDA, he said.

"This strong capital structure should provide us the financial flexibility to fund our operational needs going forward as well as return substantial capital to our shareholders through both dividends and opportunistic share repurchases," Post said.

CenturyTel expects to maintain its dividend payout ratio of about 50% following the closing of the transaction, he said.

The combined company is expected to have pro forma revenue in excess of $8.8 billion and pro forma EBITDA of $4.2 billion. Synergies are estimated at $400 million annually within the first three years of operation.

"In addition to having greater scale and efficiencies, as a combined entity we will have increased financial strength and flexibility, which in today's market, in particular, is critical to our success," Post said.

Under the terms of the transaction, CenturyTel will assume $5.8 billion of Embarq's debt. CenturyTel said it has received commitments from Bank of America, Barclays Bank plc, Morgan Stanley Senior Funding, Inc. and Sun Trust Robinson Humphrey to refinance Embarq's bank debt at closing.

Investment-grade status key

When asked for his view on CenturyTel's ideal pro forma capital structure, Post said he was not prepared to state a target but that the key factor for the company would be maintaining its investment-grade credit rating.

Post also said during the question-and-answer session that CenturyTel could be ready to consider other acquisition opportunities in about a year due to the easy conversion of the back-office systems of CenturyTel and Embarq.

16 state approvals required

Prior to closing, the proposed combination is expected to require approval from 16 state regulators as well as from the Federal Communications Commission and the Department of Justice.

"We think we have a set of facts and conditions that should not only receive approval but should be welcomed by these regulators as they review the transaction," Tom Gerke, chief executive officer of Embarq, said during Monday's conference call.

The transaction is also subject to approval by shareholders of both companies and is expected to close in the second quarter of 2009.

Under the terms of the agreement with Embarq, Embarq shareholders will receive 1.37 CenturyTel shares for each share of Embarq common stock they own. The consideration represents a 36% premium over Embarq's closing stock price on Friday, according to a company news release.

CenturyTel is a Monroe, La., telecommunications company.

Headquartered in Overland Park, Kan., Embarq is a provider of communications services.

Mentioned in this article:

CenturyTel, Inc. NYSE: CTL

Embarq Corp. NYSE: EQ

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