CenturyLink, Inc. (CTL)

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CenturyTel, Inc. (CTL)

CenturyLink and Qwest Agree to Merge Call Transcript

April 22, 2010 9:30 am ET

Executives

Tony Davis – VP, Investor Communications, CenturyTel

Glen Post – President and CEO, CenturyTel

Ed Mueller – Chairman and CEO, Qwest Communications International

Stewart Ewing – EVP, CFO and Assistant Secretary, CenturyTel

Joe Euteneuer – EVP and CFO, Qwest Communications International

Analysts

Batya Levi – UBS

John Hodulik – UBS

Michael Rollins – Citi Investment Research

Simon Flannery – Morgan Stanley

David Barden – Banc of America

Jason Armstrong – Goldman Sachs

Frank Louthan – Raymond James

Chris King – Stifel Nicolaus

Jonathan Chaplin – Credit Suisse

Mike McCormack – J.P. Morgan

Chris Larsen – Piper Jaffray

Javier Lavis [ph] – Oppenheimer

Todd Rethemeier – Hudson Square Research

Phil Cusick – Macquarie

Robert Schiffman – Credit Suisse

Joe Staff [ph] – Susquehanna

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to today's conference call and webcast to discuss the combination of CenturyLink and Qwest. (Operator Instructions) I would now like to turn the call over to Tony Davis, Vice President of Investor Communications at CenturyLink. Tony, please go ahead.

Tony Davis

Thank you, Melissa. Good morning, everyone and welcome to our conference call today to discuss the combination of CenturyLink and Qwest, which was announced earlier this morning. For those of you who have access to the Internet, we will be using a slide presentation during today's call and this presentation is available on both CenturyLink's and Qwest's websites and on the joint website that we launched this morning at www.centurylinkqwestmerger.com.

At the conclusion of our prepared remarks, we will open the call for Q&A regarding the transaction. Your hosts for today's call are Glen Post, President and Chief Executive Officer of CenturyLink and Ed Mueller, Chairman and Chief Executive Officer of Qwest. Also joining us this morning are Stewart Ewing, Executive Vice President and Chief Financial Officer of CenturyLink and Joe Euteneuer, Qwest's Executive Vice President and Chief Financial Officer.

Certain forward-looking statements may be made during the call today and we ask that you please review our Safe Harbor language found in our press releases and the slides we will be using during today's presentation as well as our SEC filings which describe factors that could cause our actual results to differ materially from those projected by us in our forward-looking statements.

With that introduction, I will turn the call over to Glen Post. Glen?

Glen Post

Thank you, Tony. We appreciate the opportunity to speak with you today and thank you for taking time to join us on such short notice. This is an exciting day for all of us at CenturyLink and at Qwest and hope you share our enthusiasm. I will begin on slide six, which outlines the key terms of the transaction. I will run through these briefly.

This is an all stock transaction in which Qwest shareholders receive a fixed exchange ratio of 0.1664 CenturyLink shares for every share of Qwest common stock they own. Upon close, CenturyLink shareholders will own 50.5% and Qwest shareholders will own 49.5% of the combined company. Based on CenturyLink's closing stock price at $36.20 yesterday, Qwest shareholders would receive $6.02 of CenturyLink's stock for each Qwest share.

This represents a total enterprise value of $22.4 billion, including the assumption of $11.8 billion of Qwest debt. We also expect to achieve annual run-rate synergies of approximately $625 million. This represents a multiple of 5.1 times last 12 months EBITDA before synergies and 4.5 times after run-rate – times EBITDA after run-rate synergies.

In addition, it represents a 5.9 times last 12 months free cash flow before run-rate synergies and 4.8 times free cash flow after synergies. As you see on slide seven, there are no financing contingencies or any refinancing requirements related to the transaction. The combined company will have had pro forma leverage of 2.4 times EBITDA for the 12 months ended December 31, 2009 before synergies and 2.2 times EBITDA after run-rate synergies.

We expect to maintain our current dividend, which results in a payout ratio of approximately 50% based on pro forma 2009 results and potentially under 50% after expected run-rate synergies. We expect the transaction to close in the first half of 2011, following approval of CenturyLink and Qwest shareholders as well as federal and state regulators.

Turning to slide eight, I want to discuss why we believe this combination is so compelling both strategically and financially. This is a truly transformative transaction. Upon completion, CenturyLink will be a national industry leading communications company with an enterprise business that we expect to be a significant contributor to our growth.

The combined company will be even more competitive with significantly increased scale and scope, including an operating presence in 37 states with approximately 5 million broadband customers and 17 million access lines. We will deliver premier enterprise services to 95% of Fortune 500 companies across the country.

In addition, this combination creates a robust 173,000 mile fiber national network that will enable the efficient provisioning of data communication services across the U.S. and into our local markets. The transaction is also compelling from a financial perspective. If you look at our companies on a pro forma basis as of December 31, 2009, we will have had pro forma revenue of nearly $20 billion, EBITDA of over $8 billion and $3.4 billion in annual free cash flow.

In addition to benefiting from greater scale and efficiencies, this transaction also diversifies our revenue streams. It significantly increases our enterprise business revenue streams, which we believe will provide a foundation of future growth, especially considering the increasing demand for data communications.

Read the rest of this transcript for free on seekingalpha.com