Embarq in rural phone merger

CenturyTel Inc. on Monday said it would buy Embarq Corp., a larger fellow phone company, for stock initially valued at $5.8 billion.

Analysts said the move was a harbinger of additional deals for rural phone companies, which are suffering line losses as consumers choose 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 and its management will dominate the combined company, Embarq shareholders will own two-thirds of it.

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.

CenturyTel shares fell $3.88, or 13%, to close Monday at $25.62, making the value of the offered shares $5.05 billion. Embarq shares rose 64 cents, or 2.2%, to $30.38.

CenturyTel would also assume $5.8 billion of Embarq’s debt in the deal, the companies said.

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.

Apart from providing service in rural areas and smaller cities in 18 states from coast to coast, Embarq is 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.

Embarq is the largest of the so-called independent phone companies that weren’t part of AT&T; in its Ma Bell days. “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 research note Monday.