WRAPUP 4-CenturyTel to acquire Embarq in $5.8 bln deal

Credit Suisse analyst Chris Larsen said the deal would likely kick off a long-expected round of consolidation among rural phone companies with potential deals including a purchase by Windstream Corp (WIN.N), the second biggest rural provider, of smaller operator Frontier Communications Corp (FTR.N).

"We think a Windstream/Frontier transaction is the next most logical," he said in a research note. Consolidated Communications (CNSL.O) is also seen as a potential target.

Centurytel may also look at doing more deals deals within in a year, if there are more opportunities in the carrier or technology services space, Post said.

The combined Embarq-CenturyTel would operate in 33 states and have about 8 million access lines, 2 million high-speed Internet customers and about 400,000 video subscribers.

Monroe, Louisiana-based CenturyTel paid about 7.9 times projected 2009 earnings for Embarq, the former wireline telephone business of Sprint Nextel (S.N).

Overland Park, Kansas-based Embarq trades for 5.6 times projected 2009 earnings, below the average value of 8.8 times for its peers, according to Reuters data.

On closing, Embarq shareholders are expected to own about 66 percent of the combined company, which will be based in Monroe, Louisiana, and would have had combined revenue of $8.8 billion as of September 30.

The name of the new company will be decided before the deal closes. CenturyTel's Post will serve as CEO of the combined company, while Tom Gerke, Embarq's chief executive, will serve as executive vice-chairman of the board, the companies said.

Separately, Embarq posted a third quarter profit of $160 million, or $1.11 a share, from $157 million, or $1.01 a share, a year earlier. Before items associated with a work force reduction, earnings per share were $1.40, beating Wall Street consensus estimates of $1.30, according to Reuters Estimates.

CenturyTel's quarterly profit fell to $84.7 million, or 84 cents per share, from $113.2 million, or $1.01 a share, a year before, with revenue declining 8 percent.

Its profit before special items was 82 cents a share, compared with analyst estimates of 83 cents a share.

Shares of Embarq, which have fallen about 46 percent over the past year, rose $1.45, or almost 5 percent, to $31.19 on New York Stock Exchange after the news. Shares of CenturyTel, the third biggest rural provider, fell 12 percent to $26.06. (Reporting by Franklin Paul, Ritsuko Ando and Sinead Carew in New York and Jessica Hall in Philadelphia; Editing by Derek Caney and Peter Galloway)