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CenturyLink to acquire Level 3 for $34B to boost fiber optic network
The balance of power in the business Internet communications market is about to change in a big way.
CenturyLink Inc., the third-largest carrier in the U.S., today entered into an agreement to acquire fiber network operator Level 3 Communications Inc. for about $34 billion. Excluding debt, the deal is worth about $25 billion in cash and stock, valuing Level 3 at $66.50 per share. This represents a 42 percent premium over its last closing price before the Wall Street Journal leaked word of the buyout Thursday.
The deal, expected to be completed in the third quarter of 2017, would create a more formidable rivals to leaders AT&T Inc. and Verizon Communications Inc. In a conference call with analysts, executives emphasized the size and scale benefits of the deal.
The combined company is poised to emerge as the second-largest Ethernet provider in the U.S., with a network reaching more than 75,000 buildings. Much of this expanded infrastructure footprint will run on the 200,000 route miles of fiber-optic cabling currently operated by Level 3, about 33,000 of which represent submarine links that connect multiple continents.
Bloomberg reports that the acquisition also buys CenturyLink a suite of network security products it will be able to sell to its enterprise customers. Last but certainly not least, the deal is set to bring massive financial benefits on the organizational side. The carrier expects to achieve $975 million in annual overhead savings from “elimination of duplicative functions, systems consolidation” and various other operational cuts.
The icing on the cake is that Level 3 has racked up nearly $10 billion in losses before becoming profitable in November 2014, which CenturyLink will use as credit against its tax bill to reduce tax expenses.
Once the deal is complete, the combined company will draw about three-quarters of its revenue from business customers. Bloomberg cited analyst firm MoffettNathanson as saying that that regulators won’t hold up the transaction like they did with AT&T’s ultimately failed $39 billion bid for T-Mobile International AG’s U.S. business.
CenturyLink shareholders will retain a 51 percent ownership stake while Level 3’s investors are set to receive the remainder.
Image via Pixabay
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