According to Dan Rayburn today, those rumors swirling around Limelight Networks (NASDAQ:LLNW, news, filings) a few weeks ago have coalesced into serious talks with Level 3 Communications (NYSE:LVLT, news, filings) about somehow combining their CDN efforts. That could mean anything from an outright purchase of Limelight by Level 3 to a purchase of the Level 3 CDN business by Limelight with Level 3 maintaining an ownership interest. Here are a few rambling thoughts:
On the outright purchase of Limelight by Level 3: I have always been a skeptic of this idea. It’s harder to derive savings from a content delivery network integration without shutting one down and migrating the customers, and given the overlap and resulting revenue churn – for the price to make sense it would have to be low. Limelight’s stock price is definitely low these days following their earnings miss, but is it low enough for this make sense? Actually, maybe it is. But is Limelight really that desperate following one bad quarter after all they’ve gone through to get this far? I’m not sure I believe that.
On the spinoff of Level 3’s CDN into Limelight: This is an intriguing idea because it seems to solve one of the core issues underlying the company’s ongoing interconnection dispute with Comcast. Having their CDN tied so closely to their transit network distorts peering and transit relationships, and might be causing them some difficulties with parallel negotiations with other last mile providers. Separating the businesses while maintaining a [presumably large] ownership interest in the CDN segment might change that dynamic. Level 3 has always operated its CDN business with a bit of separation, so it probably wouldn’t change that much.
Still skeptical though: Despite the simplicity of the joint venture idea, I’m still quite skeptical because I think that Level 3 sees CDN as an increasingly important aspect of the network as a whole and I don’t think they want to lose control over it. On the contrary, it is my feeling that Level 3 sees the eventual evolution of CDN services into an integral piece of IP network design. Even if moving its CDN capabilities into a joint venture makes sense on paper, strategically it might reduce their options in handling a more tightly integrated future. And the whole Comcast thing is still non-material and doesn’t seem to be boiling over – Level 3 doesn’t seem to need to do anything here except grow organically.
The last word: Hence, my guess for Limelight’s future is that any theoretical deal with Level 3 is going to find plenty of willingness to discuss but perhaps too much ambivalence to finalize in the near future. Above all else, Level 3 needs to close the Global Crossing deal – it is of far more importance to them strategically right now to introduce any random factors. Seems to me that Limelight’s best bet might come along when CenturyLink or Windstream are ready to take the next step beyond copper.
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Categories: Content Distribution · Internet Backbones · Internet Traffic
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Your skepticism surrounding the state of affairs at Limelight, seems to dismiss the Sony PlayStation debacle and corresponding breach of security for 70MM of their once dedicated subscribers.
It’s also interesting that one of LVLT’s govt. customers is the FBI, and they would rank near the top of agencies seeking best of breed internet security and content distribution services.
http://www.washingtonpost.com/blogs/faster-forward/post/fbi-looks-into-sonys-playstation-security-breach/2011/04/29/AFoingEF_blog.html
The effect this will have on any responsible company can be devastating and long lasting.
Regarding patents; however, isn’t Limelight extremely versed in the mobile or wireless internet space as opposed to the fixed or wired line?
what you said makes sense to me “it is my feeling that Level 3 sees the eventual evolution of CDN services into an integral piece of IP network design.”
Isn’t it true that wholesale bandwidth business, e.g. optical, internet, mpls, voice, basically competes on price, since T1/T2 have the same featues, SLAs and coverage?
LVLT has more than enough on their plate at this moment in time to reach any final agreement with LLNW – “Level 3 is going to find plenty of willingness to discuss but perhaps too much ambivalence to finalize” – this possible union may take place at some point down the road but the financial arrangements will be of greater usage to the linings of Sunit Patel…..
story and my comments here:
http://blog.streamingmedia.com/the_business_of_online_vi/2011/11/limelight-and-level-3-expected-to-make-joint-announcement-shortly.html
I’m withholding comment for now, as I haven’t been able to confirm this. I don’t doubt Dan, but we don’t have any more information than we did before either! 🙂
What about Icahn buying LL?
Don’t give the man any more ideas! 🙂
Rob – your right. That would be the worst thing for LL. he’ll hire a bunch of nimrods or put morons in charge and destroy enterprise value quickly.
He’s already tried to buy LL however they walked away b/c they became disgusted dealing with him & his negotiating tactics.
Nonsense. Even if true theres no chance he could pull it off with the clowns he has running the business.
Wow. Another company icahn would significantly diminish value on. Guess I will steer clear.
Mr Real you don’t know what your talking about – I agree the attempt might be nonsense but the fact is that he tried to buy them is true. CI def attempted to buy them, however you’re correct re the clowns running the company. He has set up a specific business unit to put it in & spin off later.
How can you think CI would seriously consider making a run at LL and or any other asset? Read the most recent info posted in the minority shareholder lawsuit by R2. There’s sworn testimony by former CEO of CI’s actions which reflect his real genius by constantly shopping XO around. Was he ever serious? Or was it all a plan to distress the company further thereby driving down the valuation and ultimately making it easier to create more leverage for himself to take out the remaining litigants?
Fast forward to your hypothesis … If you seriously think he’s taking and or did take a run at LL you’re mistaken. My bet is he is smarter that we give him credit and at least he may be getting a peak at what it might take and or something more sinister like the mere fact that he is associated with any exploratory action might in fact devalue the opportunity he is exploring thus making it easier to buy in future when he is actually serious. But i assure you he was never serious … from my standpoint in the M&A world he is never really serious until he is serious.
BTW, re – clowns … includes the CTS leadership team. One person in new structure perhaps two are ok from what i’ve been told .. the others are recylced former misfits from former XO leadership team.
Onward.