Hawaiian Telcom, the state’s largest telecommunications company, and Cincinnati Bell are merging in a cash-and-stock deal worth $650 million.

The two companies said today they will keep their separate local brand identities and operations. The boards of directors of both companies approved the agreement.

Hawaiian Telcom will continue to be locally managed from Hawaii and its existing union labor agreements will be honored. Hawaiian Telcom will name two directors to the combined board of directors and these seats will be held by Hawaii residents, which Hawaiian Telcom said ensures that Hawaii is well represented when broader strategic decisions are made. Hawaiian Telcom has 1,300 employees and Cincinnati Bell has 3,000.

“Cincinnati Bell’s track record of success and commitment to investing in the build-out of its regional fiber network in both urban and non-urban areas over the past decade makes it a great partner for us,” Scott Barber, Hawaiian Telcom president and chief executive officer, said in a statement. “We look forward to sharing our companies’ fiber expertise and enhanced service offering as we continue to expand our Next-Generation Fiber Network throughout the state of Hawaii. With our highly complementary values, distinctive brands and vision focused on fiber as the future, and our shared commitment to the communities in which we operate, I am confident this partnership will provide great opportunities for growth and value creation to both Hawaiian Telcom and Cincinnati Bell stockholders, along with our customers and partners.”

Under the agreement, which includes the assumption of net debt, Hawaiian Telcom stockholders will have the option to elect either $30.75 in cash, 1.6305 shares of Cincinnati Bell common stock, or a mix of $18.45 in cash and 0.6522 shares of Cincinnati Bell common stock for each share of Hawaiian Telcom. The total amount is subject to proration so that what is paid to Hawaiian Telcom stockholders will be 60 percent cash and 40 percent Cincinnati Bell common stock. The payout represents a 26 percent premium to Hawaiian Telcom’s closing price of $24.44 on Friday. Hawaiian Telcom stockholders will own approximately 15 percent and Cincinnati Bell stockholders will own approximately 85 percent of the combined company.

“Cloud migration, the need for fiber infrastructure that supports 5G-ready, high-density data transmission and IoT (Internet of Things) are the key trends that will define telecommunications in the future,” Leigh Fox, president and CEO of Cincinnati Bell, said in a statement. “We are excited about the opportunity to partner with Hawaiian Telcom as part of Cincinnati Bell’s refined strategy to build two distinct businesses with the appropriate scale, structure and leadership to deliver superior operating results, while providing strategic optionality from a diversified but complementary portfolio of assets. Today’s announcement positions us to capitalize on these favorable market dynamics while enhancing our leadership at the forefront of the telecommunications landscape. Hawaiian Telcom brings Cincinnati Bell greater financial and operational scale and an established market position in a new geography to seize upon the growing demand for fiber.”

With the merger, Cincinnati Bell gains access to the Hawaii market and will provide Hawaiian Telcom with expanded liquidity and capital flexibility to continue to expand its Next-Generation Fiber network. The companies’ combined fiber networks exceed 14,000 fiber route miles. In addition, Hawaiian Telcom provides Cincinnati Bell with direct access to the 2.6 terabytes of transpacific fiber cable capacity linking Asia and the U.S.

The merger, which is subject to federal and state regulatory approvals and approval by Hawaiian Telcom’s stockholders, is expected to close in the second half of next year.

In early trading, Hawaiian Telcom’s stock was up $4.56, or 18.7 percent, at $29. Cincinnati Bell’s stock was off $1.58, or 8.2 percent, at $17.77.