CenturyTel Inc. Monday said it will buy Embarq Corp., a larger fellow phone company, for stock initially valued at $5.8 billion.
Embarq is the primary local phone service provider in Lee and Collier counties. In Southwest Florida, Embarq has nearly 760 employees. In addition to Collier and Lee, that also includes Charlotte, Hendry and Glades counties.
It’s too soon to say whether the buy-out will lead to more job cuts locally, said Charles Fleckenstein, a spokesman for Embarq.
“There are two teams being formulated to look at what the next steps are and we will go from there,” he said. The teams will involve both companies.
It’s also not clear how or whether services might change.
In August, it shut down its call center in Fort Myers, laying off 106 employees. A company spokesman said then that the call center was no longer needed because operations had become more efficient.
Analysts said the sale is harbinger of further deals for rural phone companies, which are suffering from line losses as consumer chose phone service from wireless or cable companies.
The combined company will have about 8 million lines spanning 33 states, mainly in rural areas.
Even though CenturyTel is the acquirer, Embarq shareholders will be left with control of two-thirds of the combined company.
Embarq shareholders will get 1.37 shares of CenturyTel for each share of Embarq. Based on CenturyTel’s Friday close of $29.50, that’s equivalent to $40.42 worth of CenturyTel stock for each Embarq share owned.
In midday trading Monday, CenturyTel shares were down $3.47, or 12 percent, at $26.03, making the value of the offered shares $5.1 billion. The day’s low of $24.66 was their lowest level since 2002.
Embarq shares rose $1.76, or 5.9 percent, to $31.50. An odd downward spike in the shares in early trade sent the shares down to $28.28, the lowest level since the company was spun off from Sprint Nextel Corp. in 2006.
“We believe CenturyTel is choosing an opportune time to make an acquisition,” said analyst Christopher King at Stifel Nicolaus.
CenturyTel will also assume $5.8 billion of Embarq’s debt, the companies said.
CenturyTel’s management will dominate the new company. The headquarters for the combined company will be in Monroe, La., where CenturyTel is based, but there will be a “significant presence” at Embarq’s current headquarters in Overland Park, Kan., the companies said.
CenturyTel Chief Executive Glen Post will hold the same position in the new company, with Tom Gerke, Embarq’s CEO, as executive vice chairman. Eight of the 15 board members will come from CenturyTel.
The name of the new company has not been determined.
Apart from providing service in rural areas and smaller cities in 18 states from coast to coast, Embarq is also the main phone company in Las Vegas. CenturyTel’s service areas are mainly in the South and Midwest, in a swath from Louisiana to Minnesota. It also provides service in Colorado and the Northwest.
The companies expect “synergies” of $400 million a year through the deal, in part by cutting corporate overhead costs and eliminating duplicate functions. The acquisition should also make it more attractive to upgrade the companies’ phone networks for broadband, video service and wireless data, they said. CenturyTel has its own network of optical fiber in the Midwest and South, which could be used to carry long-distance traffic from current Embarq customers. Sprint kept its long-distance network when it spun off Embarq.
The deal is expected to close in the second quarter next year, pending regulatory approvals.
Embarq is the largest of the so-called “independent” phone companies that weren’t part of AT&T back in its Ma Bell days. Other large independents are Fairpoint Communications Inc., Frontier Communications Co. and Windstream Corp.
“We believe that this is just the first transaction in a wave of consolidation in the rural wireline sector,” SurTerre Research analyst Todd Retheimer wrote in a Monday research note.
Separately, Embarq and CenturyTel reported third-quarter earnings on Monday.
CenturyTel’s earnings fell 25 percent from a year ago to $84.7 million, as revenue fell to $650.1 million from $708.8 million in part because last year’s figure was inflated by a $42.2 million settlement from another carrier after a fee dispute. It lost 6 percent of its phone lines in the year.
Embarq’s earnings rose 2 percent to $160 million while revenue fell to $1.53 billion from $1.59 billion. It lost 9 percent of its phone lines.