CenturyLink has pulled the trigger on buying Level 3 Communications for $34 billion in a deal that would lead to the formation of one of the largest communications service providers for businesses.
Businesses of all sizes are increasingly looking for communication service providers (CSPs) that are able to provide them with scalable, on-demand services, applications and bandwidth. On the other end, the merger would give CenturyLink Inc. (NYSE: CTL)
considerably more weight to throw around in the already competitive business services arena.
The combined company would boast close to 500,000 route miles of fiber, which would include 64,000 route miles in 350 metropolitan areas and 33,000 subsea route miles connected to multiple continents, according to CenturyLink. It would also result in a company that's expected to produce about $19 billion in annual revenue on a pro forma basis.
Once the transaction passes regulatory muster, which CenturyLink said would be late September of next year, current CenturyLink CEO and President Glen Post will lead the new company while Level 3 Communications Inc. (NYSE: LVLT) Chief Financial Officer Sunit Patel will serve as the financial chief.
While AT&T Inc. (NYSE: T) pursues a vertical integration with Time Warner Inc. (NYSE: TWX)
, CenturyLink and Level 3 are second cousins of sorts on the business services side. In theory the two companies wouldn't face as many cultural and integration issues as AT&T might with Time Warner, or Verizon Communications Inc. (NYSE: VZ)
with Yahoo Inc. (Nasdaq: YHOO). (See Merger Musings: TW + AT&T = ? and Verizon Betting Big on Yahoo's Assets.)
Both companies are also big believers in virtualization, but going forward it will be interesting to see how issues such as end-to-end network orchestration and the different use cases for SDN and NFV would play out. (See CenturyLink, Level 3 in Courting Stage.)
"The digital economy relies on broadband connectivity, and together with Level 3 we will have one of the most robust fiber network and high-speed data services companies in the world," Post said in a prepared statement.
For Level 3, the transaction closes the book on various boom and bust cycles, as well as close calls with bankruptcy, while also aligning its backbone assets with CenturyLink's increased build out of its own fiber.
"This is a compelling transaction for our customers, shareholders and employees," said Level 3 CEO and President Jeff Storey, also in a prepared statement. "In addition to the substantial value delivered to shareholders, the combined company will be uniquely positioned to meet the evolving and global needs of enterprise customers."
The companies said in today's press release that the transaction would lead to even more services and applications going forward while also keeping up with the ever increasing demand for bandwidth by customers. Together, CenturyLink's and Level 3's revenue would be comprised of 76% from business customers while 65% of the combined company's core revenue would be from strategic services.
There's the prospect of job cuts if the transaction closes. The companies said the scale of the combined company was expected to generate $975 million a year in cost savings by shedding duplications, systems consolidation and increased operational and capital efficiencies.
Under the terms reached by both boards, Monroe, La.-based CenturyLink will acquire Level 3 for $26.50 in cash and 1.4286 shares of CenturyLink stock for each Level 3 share, as well as the assumption of about $10.9 billion of Level 3's debt.
Based on Friday's closing prices, the deal values Level 3 at $69.92 a share, which was close to a 50% increase over Level 3's closing price on Wednesday, the day before The Wall Street Journal reported that the two companies were in merger talks. Once the deal is finished, CenturyLink's shareholders will have a 51% stake in the combined company while Level 3's will own the rest.
The combined company will be headquartered in Monroe, but it will also include a significant presence in the Denver area. Level 3 is headquartered in the Denver suburb of Broomfield, Colo.
Along with the proposed transaction, CenturyLink and Level 3 announced their third quarter earnings Monday morning.
— Mike Robuck, Editor, Telco Transformation