The deal unites the third and fifth-largest telephone companies in the U.S. by number of traditional phone lines.
Together, they'll have about 18 million phone lines, but that number is expected to continue to shrink by about 10 percent per year as consumers chose to rely on their wireless phones or service from cable companies. The fourth-largest provider of landline phone service in the country, by the number of subscribers, is now cable company Comcast Corp.
The acquisition continues a trend of consolidation in a shrinking industry. Neither Qwest nor CenturyTel own wireless networks that can compensate for the loss of landlines, like AT&T and Verizon Communications Inc. do.
But they hope the acquisition will make their combined company more competitive as a provider of telecommunications services to businesses and expand the reach of their broadband Internet service for consumers.
CenturyTel, which does business as CenturyLink, acquired Embarq Inc., the landline service company once part of Sprint Inc., last year.
Qwest provides traditional phone service in 14 mostly Western states and is a successor to one of the regional Baby Bell companies spawned by the breakup of AT&T in the 1980s.
CenturyTel is offering stock worth about $6.02 per share for each Qwest share, a premium of about 15 percent to Qwest's Wednesday closing price of $5.24.
Qwest stockholders will receive 0.1664 CenturyTel shares for each share they own and will hold 49.5 percent of the new company, while CenturyTel stockholders will own 50.5 percent of the business.
CenturyTel, which is based in Monroe, La., is also assuming $11.8 billion in debt of Denver-based Qwest.
Both companies' boards have approved the tax-free acquisition, which is expected to close in the first half of 2011. They expect the acquisition to save the combined company $625 million over three to five years following the close of the deal.
Qwest shares rose 19 cents, or 3.6 percent, to $5.53 ahead of regular trading, while CenturyTel fell $1.25, or 3.5 percent, to $34.95.