Business Context and Reporting Period
This Form 8-K Current Report, dated July 15, 2011, is filed by CenturyLink, Inc. (not Lumen Technologies, Inc., which is a later name change). The report announces the completion of the previously announced acquisition of SAVVIS, Inc. (Savvis). Under the Merger Agreement dated April 26, 2011, a wholly-owned subsidiary of CenturyLink merged with Savvis, with Savvis continuing as a wholly-owned subsidiary of CenturyLink.
Key Financial Metrics and Transaction Details
The filing details the consideration paid for the acquisition and recent financing activities:
- Merger Consideration: Each outstanding share of Savvis common stock was converted into the right to receive $30.00 in cash and 0.2479 of a share of CenturyLink common stock. The stock fraction was calculated by dividing $10.00 by the volume-weighted average trading price of CenturyLink stock over the 30-day period ending July 12, 2011.
- Financing: On June 16, 2011, CenturyLink issued $2.0 billion in aggregate principal amount of unsecured senior notes. These proceeds were used to fund a portion of the Merger consideration and to refinance pre-existing Savvis credit facility debt.
- Management Appointment: James E. Ousley, former CEO and Chairman of Savvis, was appointed Chief Executive Officer – Savvis Operations.
Note: This filing does not provide specific revenue, profit, cash flow, margin, or total debt figures for the reporting period. It focuses solely on the transaction mechanics.
Material Changes
The primary material change is the completion of the acquisition of Savvis, expanding CenturyLink's portfolio into cloud computing and managed services. This follows previous acquisitions of Qwest (April 2011) and Embarq (July 2009), significantly altering the company's market composition and product mix.
Outlook, Risks, and Contingencies
Management included a comprehensive "Forward-Looking Statements" section highlighting significant risks that could cause actual results to differ from projections:
- Integration Risks: Challenges in integrating Savvis, Qwest, and Embarq operations, including the possibility that anticipated benefits may not be realized or that integration is more costly and disruptive than expected.
- Regulatory Environment: Ongoing changes in communications industry regulation, specifically FCC rules regarding intercarrier compensation and the Universal Service Fund.
- Financial Obligations: Risks related to the ability to pay a $2.90 per common share annual dividend, access credit markets on favorable terms, and manage capital expenditures.
- Operational Risks: Competition, rapid technological change, labor negotiations, and the ability to collect receivables from financially troubled communications companies.
Key Facts for Investor Verification
- Verify the final exchange ratio of 0.2479 CenturyLink shares per Savvis share and the total cash consideration paid.
- Confirm the terms and interest rates of the $2.0 billion unsecured senior notes issued in June 2011.
- Monitor the integration progress of Savvis, Qwest, and Embarq to assess if synergy targets are being met.
- Review subsequent filings for updates on FCC regulatory changes affecting intercarrier compensation.
- Check future dividend announcements to ensure the $2.90 per share annual dividend remains sustainable given the increased debt load.