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The sight of Hugh Hefner in his dressing gown, still playing the playboy for viewers of his reality TV show, is proof that a well managed decline can deliver satisfaction for much longer than might be expected. Hence the reason to cheer Monday’s agreed takeover of rural telecom provider Embarq by smaller peer CenturyTel, in an all-stock deal valuing Embarq at $11.6bn.

There is still some growth left in the telecoms industry. Verizon reported a big jump in earnings for the third quarter on Monday thanks to a strong performance in its wireless business – the division managed to find 1.5m new customers in the saturated North American market. However, both Embarq and CenturyTel are suffering from continual declines in their core phone line businesses. So while they remain highly profitable – operating margins for both are 27 per cent – competition from cable, wireless operators, and the rise of free internet calling is steadily eating away at subscriber numbers.

Getting together should allow the combined group to save about $400m in costs annually, or about 5 per cent of sales. The new group – yet to be named – should also have greater muscle in marketing and lobbying, an important aspect given that government payments account for about 25 per cent of CenturyTel’s turnover. And the future regulatory environment remains uncertain, with the Federal Communications Commission due to rule next week on changes to the subsidy system.

That perhaps explains why Embarq investors appear to have got the better deal, in spite of CenturyTel being the only real buyer in town. Embarq’s shareholder’s will get two thirds of the combined entity, with the offer representing a 36 per cent premium based on Friday’s closing prices. CenturyTel’s share of the capitalised value of the synergies, meanwhile, is worth only about half that of the premium it has offered. Paying for growth is expensive.

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