Hanging it up: Qwest sale announced

NEW YORK — Denver-based Qwest Communications International Inc., one of the largest companies headquartered in Colorado and the country's fifth-largest local phone company, is being acquired by an out-of-state suitor.

   CenturyTel Inc. of Monroe, La., the country’s fifth-largest local phone company, said Thursday that it will buy Qwest  in a stock swap worth $10.6 billion to gain the benefits of scale in a shrinking business. Qwest is among the largest private employers based in Colorado with about 30,000 workers in 13 states.

   The new company would be based at CenturyTel’s headquarters in Monroe, La., rather than in Denver. The Qwest name could be dropped. It would be the second high-profile departure of a Denver headquarter's office in recent months. Last year, Frontier Airlines was purchased out of bankruptcy by an Indiana-based company. The company recently announced it will retain the Frontier name.

   The telecom merger likely would lead to job cuts at the companies, which already are shedding positions. The Communications Workers of America, the largest union in the telecommunications industry, said it ‘‘looks forward to serious discussions’’ with both companies.

   Many executive jobs in Denver are expected to be eliminated.

   About 1,400 people at Qwest are what it considers corporate headquarters employees, including executives plus those in legal, finance, human resources and similar functions, the Denver Business Journal reported. They’re based at the company's 52-story headquarters tower in downtown Denver, the newspaper said.  Qwest  has   already declined to extend its lease on the building past 2012.

    Colorado U.S. Sens. Mark Udall and Michael Bennet, both Democrats, issued a joint statement voicing concern about the sale's impact on the economy of Denver and the state. "We want to ensure that as many jobs as possible remain," the pair said.

    Gov. Bill Ritter noted similar concerns and also worries about the possible loss of Qwest's civic contributions. “It is also my hope that CenturyLink continues Qwest’s historically strong support for our community, our institutions and our charitable organizations,” Ritter said in a statement.

 The combined company would have about 18 million phone lines serving customers in 37 states, but still would be dwarfed by wireless leaders AT&T Inc. and Verizon Communications Inc.

 The number of landlines in the U.S. shrinks by about 10 percent per year as consumers chose to rely on their wireless phones or service from cable companies. The fourth-largest provider of landline phone service in the country, by number of subscribers, is now cable company Comcast Corp.

 The acquisition continues a trend of consolidation in the landline business. But neither Qwest nor CenturyTel own wireless networks that can compensate for the loss of landlines, as AT&T and Verizon do.

 But they hope the acquisition can make their combined company more competitive as a provider of telecommunications services to businesses and expand the reach of their broadband Internet service for consumers.

 Analyst David Dixon at FBR Capital Markets noted that the federal government is moving to shift subsidies away from rural phone service and toward broadband lines. Rural phone subsidies are a large source of revenue for CenturyTel, and the shift could be a challenge.

 CenturyTel, which does business as CenturyLink, acquired Embarq Inc., the landline service company once part of Sprint Inc., last year.

 Qwest provides traditional phone service in 14 mostly Western states and is a successor to one of the regional Baby Bell companies spawned by the breakup of AT&T in the 1980s. Financial maneuvers during the Internet boom left it saddled with a heavy debt load, making it an unlikely acquirer, even though it is larger than CenturyTel.

 CenturyTel is offering stock worth about $6.02 per share for each Qwest share, a premium of about 15 percent to Qwest’s Wednesday closing price of $5.24.

 Qwest stockholders would receive 0.1664 CenturyTel shares for each share they own and hold 49.5 percent of the new company, while CenturyTel stockholders would own 50.5 percent of the business.

 CenturyTel would also assume $11.8 billion in Qwest’s debt.

 Both companies’ boards have approved the tax-free acquisition, which is expected to close in the first half of 2011. They expect the acquisition to save the combined company $625 million over three to five years following the close of the deal.

  Analysts say the purchase is likely to be approved by federal regulators — perhaps with some conditions attached — because the companies operate mostly in different markets.

  Analysts said that while federal regulators are unlikely to try to block the acquisition, they could require the companies to expand high-speed Internet service and meet other conditions.

A timeline of key events in the history of Qwest Communications International Inc.:

• April 1995: Qwest opens its Denver headquarters as a fiber-optic network operator and long-distance telephone service provider.
• December 1996: Qwest hires Joe Nacchio as president and CEO.
• June 1997: Qwest sells a 14 percent stake to investors for $279 million in an initial public offering.
• June 1998: Qwest buys LCI International Inc., a company more than twice its size, forming the nation’s fourth-largest long-distance company.
• July 2000: Qwest completes a merger with U S West, a Denver-based Baby Bell.
• April 2002: The Securities and Exchange Commission begins an inquiry into Qwest accounting practices.
• June 2002: Nacchio resigns.
• August 2002: Qwest sells its yellow pages business for more than $7 billion.
• October-November 2002: Qwest restates $531 million in improperly recognized revenue, erases $358 million in earnings and takes nearly $11 billion in charges for reduced value.
• October 2004: Qwest agrees to pay $250 million to settle allegations by the SEC of ‘‘massive financial fraud.’’
• March 2005: SEC files civil claims against Nacchio and other former Qwest executives, accusing them of orchestrating a fraud.
• December 2005: Federal grand jury indicts Nacchio on 42 criminal counts of insider trading. He pleads not guilty.
• April 2007: Jury convicts Nacchio on 19 counts and acquits him of the others.
• May 2007: Qwest loses a bid to buy MCI Inc., which accepts buyout offer from Verizon Communications Inc.
• July 2007: Nacchio is sentenced to six years in prison, ordered to forfeit $52 million.
• April 2009: Nacchio reports to prison after losing an appeal of his conviction to the 10th U.S. Circuit Court of Appeals.
• May 2009: A judge approves a settlement of about $400 million in a shareholders’ class-action lawsuit against Qwest.
• July 2009: 10th Circuit orders a new sentence for Nacchio, saying his sentence was too long. The new sentence hasn’t yet been handed down.
• October 2009: The Supreme Court refuses to hear Nacchio’s appeal of his conviction.
• April 2010: CenturyTel Inc. says it will buy Qwest in a stock swap worth $10.6 billion.

Qwest at a glance

 Qwest Communications International Inc.

 CEO: Edward Mueller.

 Headquarters: Denver.

 Employees: 30,138 as of Dec. 31, 2009.

 2009 earnings: Profit of $662 million, or 38 cents per share, on revenue of $12.3 billion.

 Telephone lines in service: 10.3 million as of Dec. 31.

 Founded: Founded by billionaire Philip Anschutz, Qwest began in 1991 as Southern Pacific Telecom, a provider of long-distance phone services. SP Telecom changed its name to Qwest four years later and went public in 1997. Qwest acquired former Baby Bell US West in 2000.

 States where Qwest offers local phone service: Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington, Wyoming. Qwest also serves business customers nationwide.