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Merger ArbitrageCenturyLink & Qwest Communications MergerSrini Raghavan - Presenter   Daniel Nowak - PresenterChristopher ...
Investment ThesisPros                                      ConsIndustry Consolidation                    Regulatory Hurdle...
Industry Consolidation  Key Drivers for Consolidation  - Revenue decrease from fixed line (3.1% ) CARC from 2004-2008  - D...
Company Analysis  Strong Financials, high growth in Internet, decreasing telephone lines
Merger Analysis       CenturyLink                    50.5% of CenturyLink         CTL: $36.20                             ...
Merger Valuation        CenturyLink’s offer price for Qwest is fair valued
Merger Risks• Market Risk• Crisis Event – 9/11, Financial Crisis, etc.• Qwest’s financial situation• Legal issues• Lack of...
Strategy 1: Long Qwest, Short CenturyLink                                    Gross Annualized Return = 8.49%          Stat...
Strategy 2: One month before deal deadline                           3.68% Spread one month prior to deal deadline        ...
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Merger Arbitrage - CenturyLink & Qwest

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Merger Arbitrage - CenturyLink & Qwest

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Merger Arbitrage - CenturyLink & Qwest

  1. 1. Merger ArbitrageCenturyLink & Qwest Communications MergerSrini Raghavan - Presenter Daniel Nowak - PresenterChristopher Doffing Silvija MartincevicChristopher Myers Thomas OakesRachel Melnick Udaya AravapalliFebruary 1, 2012
  2. 2. Investment ThesisPros ConsIndustry Consolidation Regulatory HurdlesImproved Competitive Positioning Shareholder LawsuitSignificant Synergies Long Deal approval timeCenturyLink’s financial capability Merger of equalsFair Valuation Tough macro economic environmentFriendly Deal Potential for 54.3% gross annualized return from Merger Arbitrage Strategy
  3. 3. Industry Consolidation Key Drivers for Consolidation - Revenue decrease from fixed line (3.1% ) CARC from 2004-2008 - Decrease in access lines and revenue per access line - Competition from wireless, cable companies - Saturation of the rural market Competition and industry dynamics lead to consolidation
  4. 4. Company Analysis Strong Financials, high growth in Internet, decreasing telephone lines
  5. 5. Merger Analysis CenturyLink 50.5% of CenturyLink CTL: $36.20 368 (A) Reverse Triangular Merger SB44’s stock transferred • All Stock Transaction • Tax FreeCenturyLink’sstocktransferred 49.5% of CenturyLink • Synergies:$ 625M • Deal Size: $22.4B • Net Debt: $11.8B 0.1664 CenturyLink Shares (Fixed) Qwest SB44 Controlled by Q=$5.24 CenturyLink All of Qwest’s Assets and Liabilities transferred Deal offers Scope and Scale for both CenturyLink and Qwest
  6. 6. Merger Valuation CenturyLink’s offer price for Qwest is fair valued
  7. 7. Merger Risks• Market Risk• Crisis Event – 9/11, Financial Crisis, etc.• Qwest’s financial situation• Legal issues• Lack of regulatory approval by deal deadline Date State/Entity 04/21/2010 CenturyLink merger with Qwest Announced 04/23/2010 Shareholder Class Action Lawsuit Filed 12/15/2010 Colorado Public Utilities Commission approved the merger 03/15/2011 Washington UTC approves the merger 03/24/2011 Oregon Public Utility Commission approves the merger Approval from 26 Entities Required for Merger
  8. 8. Strategy 1: Long Qwest, Short CenturyLink Gross Annualized Return = 8.49% Static Long Target – Short Acquirer: Poor Risk/Reward
  9. 9. Strategy 2: One month before deal deadline 3.68% Spread one month prior to deal deadline Gross Annualized Return = 54.3% High Return – 1 State Agency: Good Risk/Reward Trade
  10. 10. Questions ?

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