Oct. 27 (Bloomberg) -- CenturyTel Inc., the provider of phone service in rural areas of Alabama and Missouri, agreed to buy larger carrier Embarq Corp. for about $5.8 billion in stock, almost quadrupling its subscriber base.

The per-share price of the deal is $40.42, or 36 percent more than Embarq's closing price Oct. 24. The deal also includes about $5.8 billion in debt, the companies said today.

U.S. phone companies have spent at least $150 billion on acquisitions in the past three years as they consolidate to reduce operating expenses. The purchase, CenturyTel's largest since selling shares to the public in 1968, will bolster its subscribers in regions with higher foreclosure rates such as Nevada and Florida.

``This increases CenturyTel's exposure to some difficult economic environments like Las Vegas and Florida, markets that have been a little more hard hit than they're used to serving,'' Stifel Nicolaus & Co.'s Chris King said in an interview. The Baltimore-based analyst rates CenturyTel a ``buy.''

About two-thirds of Embarq's phone lines are in four states: Nevada, Florida, North Carolina and Ohio. Embarq also operates in states such as Virginia, Pennsylvania and Texas.

Today's transaction probably will add to CenturyTel's free cash flow as of 2010, the companies said. They expect the deal, scheduled to close in the second quarter, to save as much as $400 million annually within the first three years of the deal. Together they will have about 8 million phone subscribers and 2 million broadband customers.

Monroe, Louisiana-based CenturyTel fell $3.88, or 13 percent, to $25.62 at 4 p.m. in New York Stock Exchange composite trading, the biggest decline since January 2001. Embarq, based in Overland Park, Kansas, climbed 64 cents, or 2.2 percent, to $30.38.

`Onslaught' of Competition

The new entity probably will stem customer losses in Embarq's cities because that carrier has absorbed the brunt of competition in those markets, CenturyTel Chief Executive Officer Glen Post said on a conference call.

``They've already taken on the onslaught of the initial competitive surge from the cable companies,'' said Post, 56. The new company will start an ``aggressive, pure broadband'' approach in the regions, particularly in college towns, to spur sales, he said.

Investors will get about 1.37 shares of CenturyTel for each Embarq share they hold. Embarq holders will own about two-thirds of the combined company once the transaction is completed. The companies will decide on which name to use before the close.

Job Cuts

Embarq, spun off from Sprint Nextel Corp. in 2006, has reduced its workforce by more than 10 percent since then to help maintain profit margins as customers switch from land lines to wireless service and plans from cable companies. CEO Tom Gerke said in May that the carrier would consider a takeover offer if it were in the best interests of shareholders.

Embarq said today that profit climbed 1.9 percent to $160 million, or $1.11 a share, in the third quarter from a year earlier. Sales dropped 4.3 percent to $1.53 billion, dragged down by declines in revenue from voice service.

CenturyTel also reported third-quarter results, posting an 8.3 percent drop in revenue after losing residential subscribers. The carrier operates in 25 U.S. states, and as of last year had about 2.1 million phone lines, mainly in rural areas in regions such as Missouri, Alabama and Arkansas.

Post will stay on as chief at the new company, while Gerke will become an executive vice chairman. CenturyTel Chief Financial Officer Stewart Ewing will retain his position.

Acquisitions

U.S. phone companies have sought purchases as they seek the heft to compete against cable operators. Verizon Communications Inc. agreed to buy Alltel Corp. this year for $5.9 billion in cash and $22.2 billion in debt to become the largest U.S. phone company.

CenturyTel snubbed a $9.2 billion offer from Alltel in 2001, selling the phone-service operator its wireless assets instead.

Barclays Plc and Morgan Stanley are serving as CenturyTel's lead financial advisers, with assistance from Bank of America Corp., Merrill Lynch & Co. and Wachovia Corp. JPMorgan Chase & Co. provided financial counsel to Embarq.

To contact the reporter on this story: Katie Hoffmann in New York at Khoffmann4@bloomberg.net

Last Updated: October 27, 2008 16:11 EDT