Blog Coverage CenturyLink Acquires Fortune 500 Level 3 Communications to Tackle Increased Competition in the Communications Space

LONDON, UK / ACCESSWIRE / November 1, 2016 / Active Wall St. blog coverage looks at the headline from CenturyLink, Inc. (NYSE: CTL) as the company announced on October 31, 2016, that it signed an agreement to acquire Level 3 Communications, Inc. (NYSE: LVLT) (“Level 3”). The all cash and stock deal is valued at approximately $34 billion including debt. Register with us now for your free membership and blog access at: http://www.activewallst.com/register/.

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Commenting on the merger, Glen Post, CenturyLink Chief Executive Officer and President said:

“The digital economy relies on broadband connectivity, and together with Level 3 we will have one of the most robust fibre network and high-speed data services companies in the world.”

Jeff Storey, President and Chief Executive Officer of Level 3 said:

“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.”

Terms of the merger

As per agreed terms, Level 3 shareholders will receive $26.5 per share in cash and 1.4286 shares of CenturyLink for each share. This works out to $ 6.50 for each Level 3 share. This is at a 42% premium of Level 3 closing share price of $46.92 on October 26, 2016, the day before the speculation of the merger came into play. Once the transaction is completed, shareholders of CenturyLink will hold 51% and shareholders of Level 3 will hold 49% in the merged entity.

Once the deal is final, the current CenturyLink President and CEO, Glen Post, will be the CEO and President of the new entity and current Level 3 Executive Vice President and CFO, Sunit Patel, will be the CFO of the new entity. Four Level 3 Board members, including one representative of majority shareholder STT Crossing, will be inducted in the Board of the newly formed company. The new entity will be headquartered in Monroe, Louisiana while continuing to maintain presence in Colorado and the Denver metropolitan area.
CenturyLink plans to use available cash in hand as well as fresh debt to finance the deal. Approximately $10.2 billion in secured debt is being financed through Bank of America, Merrill Lynch, and Morgan Stanley & Co. LLC.

The deal is expected to close by end of third quarter of 2017, subject to regulatory approvals. CenturyLink has entered into a voting agreement with STT Crossing (a wholly owned subsidiary of ST Telemedia), to vote in favour of the transaction. STT Crossing is the majority shareholder of Level 3 and holds approximately 18% of the company’s shares.

Joint synergies

CenturyLink is a a global communications, hosting, cloud, and IT services company whereas Level 3 is a premier global provider of data, voice, video and managed services. Jointly CenturyLink and Level 3 would form a strong communications service provider. The merged entity will have approximately $19 billion in pro-forma business revenue and $13 billion in business strategic revenue for the trailing 12-month period ending on June 30, 2016. The merged entity plans to generate 76% of its revenues from business customers and approximately 65% of the core revenues will be from strategic services.

The merged entity would give competitors like AT&T Inc., Comcast Corp., and Verizon Communications a run for their money. Both companies can jointly use the combined network of customer base and market reach to sell their products portfolio. They will get the benefits of scale and market penetration both locally and globally. With the merger, CenturyLink will be able to increase its network by 200,000 route miles of fiber, which includes 64,000 route miles in 350 metropolitan areas and 33,000 subsea route miles across multiple continents.

The merger of the two companies will result in the second largest domestic communications provider. The merged company will jointly offer its services and solutions to approximately 75,000 On-Net Buildings spread across 350 Metropolitan Areas using its owned network.

The merged company will be able to save $975 million annually in run rate synergies by the elimination of duplicative functions, systems consolidation, and increased operational and capital efficiencies. The funds generated through savings could be invested in Advanced Networks which will help in increasing the reach and speeds of its broadband infrastructure.

The merged company would be absorbing the loses of Level 3 which is valued at $10 billion, which will help it save substantially in net cash tax expenses over the next few years and generate excess cash flow. The merged entity is confident of maintaining the annual dividend rate of $2.16 per share which is currently being offered by CenturyLink to its shareholders.

In September 2016, four private equity firms GTCR LLC, Charlesbank Capital Partners LLC, Berkshire Partners LLC, and Stonepeak Infrastructure Partners, were jointly looking at acquiring CenturyLink’s Data Center Units. CenturyLink was looking to sell, all or one of the 59 global data centres it owned, since November 2015.

Stock Performance

On Monday, the stock closed the trading session at $26.58, tumbling 12.54% from its previous closing price of $30.39. A total volume of 71.93 million shares have exchanged hands, which was higher than the 3-month average volume of 4.93 million shares. CenturyLink’s stock price advanced 1.64% in the last twelve months. Furthermore, since the start of the year, shares of the company have gained 11.80%. The stock is trading at a PE ratio of 14.83 and has a dividend yield of 8.13%.

Level 3 Communications’s stock is trading jumped 3.89%, closing Monday’s session at $56.15 on volume of 44.8 million shares. In the last one month and previous three months, shares of the company have rallied 21.07% and 15.01%, respectively. Furthermore, year to date, shares of the company have gained 3.29%.The company’s shares are trading a PE ratio of 5.74 and currently have a market cap of $20.18 billion.

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