CENTURYTEL SHUTS DOOR ON ALLTEL ACQUISITION

CenturyTel leapt up the food chain of rural communications providers last week when it announced its intent to purchase 675,000 local access lines in Alabama and Missouri from Verizon Communications for about $2.2 billion. The move essentially shuts out the possibility of acquisition by Alltel, a deal proposed in August that has been the subject of contention between the two carriers ever since.

Not only will CenturyTel own more than 37% of U.S. rural access lines when the deal closes — on par with Alltel — but the company is positioning itself to acquire additional local exchange assets. CenturyTel President and CEO Glen Post said the company is open to acquiring independent carriers that “fit our strategic objectives, companies that serve rural America and either enhance our geographic clustering or provide us with additional nuclei to form new clusters across the country.”

The announcement will force Alltel to rethink its $5.87 billion buyout offer, a bid that CenturyTel rejected and that sparked lawsuits from both sides.

“Alltel wanted CenturyTel and wanted to be able to acquire these other lines at a relatively low price without one of the more important bidders as part of the process,” said Michael Balhoff, chief financial analyst for Legg Mason. Alltel declined comment last week.

But CenturyTel's deal with Verizon, expected to close in the second half of 2002, may face a few stumbling blocks. Paying for the new assets will be the most important issue, followed closely by the shedding of CenturyTel's wireless assets.

The carrier wants to maintain its Triple B rating level and is making conservative economic assumptions based on the current environment. And though the deal is not contingent on a wireless asset sale, the cash infusion could help.

“If CenturyTel can achieve a reasonable valuation and monetize those wireless assets, that would obviously help them [pay] for this acquisition,” said Christopher King, associate analyst for Legg Mason.

CenturyTel's chief focus is all-debt financing, Post said, but the company could consider other forms of long-term financing, depending on pricing and market conditions.

“We are still exploring the possibility of separating wireless from wireline in whatever manner that might take,” Post said. “We've made no final decisions, but we are in the middle of that process.”

Nonetheless, the deal is a win-win for CenturyTel and Verizon, making CenturyTel a stronger company and following the trend of Bell companies consolidating into urban markets.

CenturyTel plans to further penetrate vertical services such as caller ID and voice mail and bring additional services such as long-distance, Internet, DSL and data services into Alabama and Missouri. In addition, the company will connect its central offices to remote offices and, if economically feasible, connect its operations with fiber throughout the states in which it operates. “We don't think it makes economic sense to overbuild networks that are already in place when you can buy capacity at the rate you can buy it today in interstate networks,” Post said.