In big M&A news today, CenturyLink (NYSE:CTL, news, filings) and q have announced their plans to merge. There have been lots of rumors crossing my desk lately, but I have to admit this wasn’t one of them. That doesn’t mean it’s surprising, it’s just the mother of all RLEC consolidation deals, with the Qwest longhaul network tagging along for the ride. So what will the combined company look like?
One question I am sure that I will be asked is just what will become of the Qwest longhaul network. In the short term it takes that asset off the market of course, since this deal will probably take a year to close. Beyond that, one could argue that the greater geographic spread of the combined company will benefit the longhaul network. CenturyLink itself has a regional fiber network in the Midwest which will no doubt be integrated with it, bringing improved on and off ramps. Hence, this deal probably reduces the possibility of a later divestment of classic Qwest in the long term. But it doesn’t eliminate it.
The transaction will be structured such that CenturyLink will buy Qwest in an all-stock deal which values Qwest at $22.4B or $6.02 per share as of the close of trading yesterday – a premium of just under 15%. Centurylink shareholders own 50.5% of the resulting company and Qwest shareholders own the other 49.5%. The two companies expect to realize some $625M in annual synergies after a few years of integration, $575M of those being from opex and $50M being from capex. To get there though they will have to spend $650-800M in extra opex and $150-200M in extra capex.
The new board and management will be made up of both CenturyLink and Qwest executives, with Glen Post taking over as CEO and Ed Mueller stepping back and taking a position on the board.
I’m sure more news will filter out about this deal as the day goes on.
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