Regulatory Approval Expected for CenturyTel-Embarq Merger
Any FCC intercarrier compensation and Universal Service Fund decision is unlikely to affect a merger between CenturyTel and Embarq, Embarq CEO Tom Gerke said in a Monday conference call. CenturyTel announced it will acquire Embarq for $11.6 billion, including assumption of debt. The deal is expected to close Q2. Analysts agreed they see few regulatory hurdles.
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
Any FCC decisions in the intercarrier compensation and USF areas are likely to be appealed, and market opportunities are moving forward, while regulatory clarity is far down the road, Gerke said. The companies have concerns about an overhaul proposal that the FCC is considering. (See separate story this issue). The merger faces regulatory review by state public service commissions, the FCC and the Department of Justice.
The deal probably will be approved, Stifel Nicolaus analyst David Kaut told us. The FCC has allowed huge Bell companies to merge, making it difficult for the agency to block mergers of much smaller local phone companies, he said. Stanford Group analyst Michael Nelson also sees no major regulatory hurdles, he said, seconding the view that any regulatory changes probably will be appealed.
A combined company would be more competitive and have better cash flow than the carriers making it up, said Stifel Nicolaus analyst Chris King. Executives of the companies said the combined company would save about $400 million each of the first three years. The new company would operate in 33 states. The deal is a stock-for-stock transaction and Embarq shareholders would own some 66 percent of the combined company after the deal closes. In addition to the $5.8 billion price tag, CenturyTel will assume $5.8 billion in Embarq debt. The combined company will have about 8 million subscribers for voice, 2 million for broadband and 400,000 for video. CenturyTel CEO Glen Post would be the combined company’s CEO and Embarq CEO Tom Gerke the executive vice chairman.
The deal will spark a new wave of telecom consolidations, but deals could take longer than expected, partly due to tight credit markets, Nelson said. Gabelli & Co. analyst Sergey Dluzhevskiy said if the capital market improves in 12 to 18 months, other deals will result. He added that it may make sense for sellers to wait until markets improve to get higher prices than they can now.
Both operators posted Q3 earnings Monday. Embarq posted profit of $160 million, up from $157 million in the year- earlier period. CenturyTel’s profit dropped 25.1 percent to $84.73 million from $113.20 million.