OCTOBER 27, 2008 -- The boards of directors at CenturyTel Inc. (search for CenturyTel) and Embarq Corp. (search for EMBARQ) have approved a definitive agreement under which CenturyTel will acquire EMBARQ in a tax-free, stock-for-stock transaction.
The agreement calls for EMBARQ shareholders to receive 1.37 CenturyTel shares for each share of EMBARQ common stock they own. Based on the closing stock price for CenturyTel on October 24, 2008, this consideration would be equivalent to $40.42 of CenturyTel stock for each EMBARQ share, representing a premium to EMBARQ shareholders of approximately 36% over EMBARQ's closing stock price on October 24, 2008 and 11% over EMBARQ's average closing stock price during the past 30 calendar days.
The transaction reflects an enterprise value of approximately $11.6 billion, including the assumption of $5.8 billion of EMBARQ's debt. Upon closing of the transaction, EMBARQ shareholders are expected to own approximately 66% and CenturyTel shareholders are expected to own approximately 34% of the combined company. The parties expect the transaction to be accretive to CenturyTel's free cash flow per share in 2010, the first full year following the expected closing.
The two carriers have a combined operating presence in 33 states with approximately 8 million access lines and 2 million broadband customers. The combined company is expected to have pro forma revenue in excess of $8.8 billion, pro forma EBITDA of approximately $4.2 billion, pro forma leverage of 2.1 times EBITDA, and pro forma free cash flow of approximately $1.8 billion, based on anticipated full run-rate synergies and operating results for the 12 months ended September 30, 2008.
CenturyTel Chairman and CEO Glen F. Post III said, "This transaction is a significant win for the shareholders of CenturyTel and EMBARQ, as well as our respective employees, customers, and the communities we serve. EMBARQ has invested in building a base of high-quality assets positioned to create long-term value. 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. I am confident that the talent and dedication of CenturyTel and EMBARQ employees will enable us to quickly realize the significant potential inherent in this combination."
Tom Gerke, EMBARQ's CEO, added, "In CenturyTel, we have found a terrific strategic partner, one with an outstanding history of providing quality and innovative products and services to its customers across the country. 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. We are looking forward to joining with a partner who shares our commitment to customers, employees and the communities we serve."
The transaction is expected to generate synergies of approximately $400 million annually within the first three years of operation. Key drivers of these synergies include reduction of corporate overhead, elimination of duplicate functions, enhanced revenue opportunities, and increased operational efficiencies through the adoption of best practices and capabilities from each company.
Each company plans to continue its current dividend policy through the close of the transaction. CenturyTel has suspended its current share repurchase program pending completion of this transaction. Post closing, subject to its intention to maintain an investment grade credit rating, CenturyTel expects to continue its current dividend policy and to return a substantial portion of the combined company's free cash flow to shareholders through opportunistic share repurchase programs.
The combined company's senior leadership team will comprise executives from both CenturyTel and EMBARQ. Glen Post will be CEO, Tom Gerke will assume the role of executive vice-chairman of the board, Karen Puckett will be COO, and Stewart Ewing will serve as CFO.
William A. Owens, currently non-executive chairman of the EMBARQ board of directors, will be the non-executive chairman of the combined company and Harvey Perry will continue as non-executive vice-chairman.
Following the closing of the transaction, the board of directors of the combined company will be composed of eight current CenturyTel Board members and seven members from the current EMBARQ Board.
Corporate headquarters will be in Monroe, LA. The combined company will also maintain "a significant presence" in Overland Park, KS.
The name of the combined company will be determined prior to the close of the transaction.
The transaction is subject to regulatory approvals, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act as well as approvals from the Federal Communications Commission, certain state public service commissions, and other customary closing conditions. The transaction is also subject to the approval of CenturyTel and EMBARQ shareholders. The companies anticipate closing this transaction in the second quarter of 2009.
CenturyTel has received commitments from Bank of America, Barclays Bank PLC, Morgan Stanley Senior Funding, Inc., and SunTrust Robinson Humphrey to refinance EMBARQ's bank debt at closing.
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