Consolidation among telephone companies continues with the announcement by of their pending . CenturyTel will buy Embarq in an all stock transaction valued at $11.6 billion, including the assumption of $5.8 billion of debt. Based on the closing stock price for CenturyTel on October 24, 2008, this consideration values Embarq shares at $40.42, a 36% premium over Embarq’s closing share price as of October 24th. The new combined entity, whose name has not been chosen yet, will have a presence in 33 states with approximately eight million access lines and two 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 twelve months ended September 30, 2008,” says CenturyTel in a company statement. The current financial downturn has made telecom stocks more attractive, price wise. Embarq’s shares have fallen close to 40% since August, making an acquisition more palatable.

The combined company will still hold Embarq’s current placement behind Qwest as the fourth largest traditional telco in the U.S. We suspect it will put pressure on other large independents like and to look for merger partners. With the continuing struggles of core telecom services like switched access, companies are looking towards consolidation to strengthen balance sheets and weather the sometimes painful transition to broadband and wireless. Embarq has been focusing on strengthening its core wireline service, while CenturyTel is exploring next generation services, including limited IPTV trials and investing in 700 Mhz spectrum for a . It will be interesting to watch how the priority of these new initiatives line up in the new entity.

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