A Qwest to Merge

In what is one of the biggest telecommunications deals seen in years, CenturyTel and Qwest Communications International have agreed to merge in an all-stock deal that values Qwest at ca. $10.6 billion.  The deal links two relatively new telecommunications giants with extensive roots in the pre-Divestiture Bell System.

On a Qwest

Qwest, founded in 1996 as a fiber-optic-based networking company, acquired Baby Bell US West in a hostile corporate takeover in June, 2000.  The company provides local service in 14 western states including Arizona, Colorado, Minnesota, Nebraska, Oregon, Utah, and Washington.  CenturyTel (née Century Telephone Enterprises) is the country’s eight largest local exchange carrier and provides services in rural areas of 26 states including Alabama, Arkansas, Idaho, Kansas, Tennessee, and Washington as well as a fiber optic transport system that connects 16 states in the central U.S.  In 1998 it acquired 89,000 subscriber lines and 19 exchanges in Wisconsin from Ameritech in what was once Wisconsin Bell territory.  CenturyTel also owns the former landline operations of Sprint.

In recent years, Qwest has struggled to remain competitive with its former Bell System brethren.  AT&T and Verizon (which own the majority of the former Bell System) have become the two dominant wireless players in the U.S. in recent years.  The merger will strengthen both companies’ positions and puts Qwest back in the spotlight.  During the dot-com boom, Qwest was seen as a harbinger of things to come and was valued as high as $60 billion, although it suffered greatly in recent years, in part due to accounting scandals and in part due to a lack of focus on mobile and wireless offerings.

The agreement, under which Qwest shareholders will receive 0.1664 CenturyLink shares for each share of Qwest common stock, has been approved by the boards of directors of both companies.  CenturyLink shareholders will own ca. 50.5% and Qwest shareholders will own ca. 49.5% of the combined company after the transaction closes.

Jonathan B. Spira is CEO and Chief Analyst at Basex

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