Updated from 7:47 a.m. EDT

Local exchange carrier CenturyTel ( CTL) will acquire Embarq ( EQ) in a stock-for-stock transaction worth more than $11 billion, creating a company with roughly 8 million access lines and 2 million broadband customers.

Under the terms of the agreement, Embarq shareholders will receive 1.37 CenturyTel shares for each share of Embarq common stock they own. Based on Friday's closing price of $29.74, the deal represents a 36% premium for Embarq's shares at $40.42. The transaction also includes the assumption of $5.8 billion of Embarq's debt.

Shares of CenturyTel dropped 9% to $26.85, while Embarq surged 21% to $36.

The transaction should add to CenturyTel's free cash flow per share in 2010, the first full year following the expected closing. Both expect savings and benefits of $400 million annually within the first three years of the combined operation.

Additionally, CenturyTel and Embarq expect to have pro forma yearly revenue in excess of $8.8 billion, along with pro forma earnings before interest, taxes, depreciation and amortization, or EBITDA, of approximately $4.2 billion.

"This transaction is a significant win for the shareholders of CenturyTel and Embarq, as well as our respective employees, customers and the communities we serve," said Glen F. Post III, CEO and Chairman of CenturyTel. "We expect that bringing Embarq and CenturyTel together will accelerate both companies' strategic plans, diversify our revenues and provide us with the expanded networks, expertise and financial resources to build long-term value for shareholders."

Shortly after the merger announcement, both CenturyTel and Embarq posted third-quarter results. CenturyTel said third-quarter earnings fell to $84.7 million, or 84 cents a share, from $113.2 million, or $1.01 a share, a year ago. Excluding one-time items, the company earned 82 cents a share. Revenue fell to $650 million from $708.8 million last year. Wall Street was looking for a profit of 83 cents a share on sales of $647.8 million.

Meanwhile, Embarq said its quarterly profit rose to $160 million, or $1.11 a share, from $157 million, or $1.01 a share, in the year-earlier period. Embarq said income was hurt by charges associated with a reduction in the company's workforce, which totaled $66 million, or 29 cents a share. The company said revenue fell to $1.53 billion from $1.59 billion in the year-ago quarter.

Analysts expected Embarq to notch a profit of $1.30 a share on revenue of $1.53 billion, according to Thomson Reuters.

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