The rumors of talks between CenturyLink and Level 3 were not just true, they were imminently true. The boards of both CenturyLink and Level 3 Communications have approved a merger agreement valued at $34B including debt assumed. The deal has the potential to dramatically shift the infrastructure playing field, and will take a while to process fully — at least for me.
CenturyLink will be paying $26.50 per share in cash plus a fixed ratio of 1.4286 shares of its stock for that of Level 3, which works out to a purchase price of $66.50 per share. CenturyLink shareholders will own 51% of the combined company, and Level 3 shareholders will own the other 49%.
The combined company have some 75,000 on-net buildings around the world, with 10,000 of them in Europe and Latin America. It will have some $25B in revenue, with $13B of that being ‘strategic’ enterprise revenue. They will of course have those $10B or so of NOLs that Level 3 has been hanging onto to save money off the combined’ company’s tax bill. They expect to derive some $975M of annual synergies as well.
In terms of management, CenturyLink’s Glen Post will stay on as CEO, while Level 3’s Sunit Patel will hold down the CFO role. Four of Level 3’s board members, including one from ST Telemedia’s STT Crossing subsidiary, will be nominated to CenturyLink’s board. The company’s headquarters will be in Louisiana, while a major presence in Colorado will be maintained.
It will take a while for regulators to work through the deal, which will see the country’s third-largest ILEC buy the largest competitive infrastructure provider. They expect to close the deal, assuming everything stays on track, in the third quarter of 2017.
I honestly didn’t expect they’d go through with it, and I’m still figuring out what I think about the combination. More later on that, but add your two cents in the comments below.
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Categories: ILECs, PTTs · Internet Backbones · Mergers and Acquisitions · Metro fiber
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This is a simply terrible move.
By Level 3, CenturyLink, or both?
All of the above?
A merger of that scale does not bode well for the market. Neither company needed an exit (though CenturyLink may once the USF\CAF well dries up), but we’re going ahead anyway.
An ILEC acquiring anything is never good for anyone outside of upper management and shareholders.
Level 3 will now be slowed down by the mentality of a rural LEC and an excess of legacy.
Everyone loses.
100% agree,,, in another life I was an access buyer who bought from both companies.. Level 3 was impossible and CentLink couldn’t figure out how to be a wholesaler…
Wonder what Joe Nacchio thinks?
Is Joe out of the pokey?
nope
Joe’s been out for 3 years:
http://www.denverpost.com/2013/09/06/whats-next-for-former-qwest-ceo-joe-nacchio-as-his-prison-term-ends/
These days he’s busy shaking down his former financial adviser instead of reconsider the possibility of making an honest living:
http://www.bloomberg.com/news/articles/2016-01-11/inside-trader-nacchio-s-bittersweet-victory-over-goldman-ij9zdb6c
I agree that this is a bad move for the industry & competition. Centurylink is the winner here, Level 3 is losing a competitive advantage and consumers are losing choice and flexibility. But I’m looking at this from a users point of view and not a shareholder, and our opinion rarely if ever really matters. From Centurylink’s point of view it makes sense. Centurylink will have the Long Haul infrastructure (big deal), data center / cloud assets (ehh), and is now the largest IP carrier in the world (kind of a big deal).
Not to mention the Louisiana brain eating amoeba.
Pass the Tabasco!!!
Wait til they get asked to move to Monroe!
I think there is interesting potential depending upon how the integration and strategy plays out. One alternative: Take the cash flow from the ILEC and put it toward the fiber/infrastructure business; More access to buildings for the legacy Level 3 biz in the ILEC footprint; The ILEC headcount shrinks over time as business evolves toward infrastructure focus. I would also assume that there are pretty sizable synergies here both in headcount and network (not to mention the NOLs from Level 3 that can be used against ILEC earnings).
Is teh big winner in this deal Zayo, they look to be the prettiest asset on the bar late night at this point
Comcast or Google moves on them very soon.
Why would we want that?
Other than picking up bankrupted (or about to be) companies, when has a telecom merger or acquisition been good for the greater community?
Agreed but those of us in the industry have brought this affliction upon ourselves. Little to no innovation, price compression forced on us by customers, high barrier of entry, and no process automation. Telecom is a scary place. Happy Halloween.
Yep! Zayo reps are going to spend the next 24 months stealing big accounts from Level 3. Their execution is overrated, but it’s echelons better than anyone left in the industry.
Does anybody know what the breakup fee is?
Mr Market is not getting this with L3 not over $57 and CL about $27.50
This will be awful. There will be no synergies because C-Link’s Monroe office doesn’t understand the world outside of an RLEC. This moves means less choice for US businesses and for channel partners. UGH!!
Do you think the FCC will approve this merger? I highly doubt that the world wide presence of Level 3 and the residential presence of CLINK would make it through the FCC’s list of needs. Also after working for LVLT for a while and being a CLINK customer their business model will be a mess for years to come. LVLT is still sorting out the TW merger from two years ago.
Ha.. They are still sorting our the GC merger from long before that….
CLINK will point to Comcast and Charter, in addition to AT&T and VZ, as proof of significant competition so i foresee no regulatory approval issues.
Jim Crowe early days mantra 260×06.
Seems maybe 260 billion market cap was a little high target.
Although I will say I dont think Crowe would have sold this baby at 25 billion, he dreamed and thought big. Granted his dream were just that dreams and not reality
Spot on , Crowe wouldn’t have ……. Storey walks away with $$$$$ having done little or nothing for LVLT , the EMEA side of the company is in turmoil
Being a legacy MFS (and Level 3) employee, gobbled up by Worldcom…they had a HQ in Jackson, MS – horrible experience going there, much like a Monroe, LA.
CTL should move the HQ to Denver. More than half their employees are there now (Qwest, USW, L3)…better flights, lodging, etc.
Hey Anon,
Crowe’s dreams were surely big, but I worked for him at 2 companies and when his dreams weren’t working out it wasn’t on him, thousands would be layed off (fired) overnight for his wrong decisions. If I were him, wouldn’t be able to sleep at night…
The advantage of all of this, though, is hopefully the end of Level 3 whiners in the comment section.
Ha, now it will be “remember the good old days of Level 3?! They were never down and always fixed my problems on the first call even when it was a fiber cut”
Hey Rob –
Any thought on what they would do with the Latin America operation? CenturyLink seems to be a domestic company. Keep? Divest?
http://fuckinglevel3.com/
Rob,
You must really have a thing for Crowe to not publish my true statement.
Have you worked with or at Level 3? Their level of arrogance blended with ineptitude is astounding. CLK is unlikely to do worse and they can chop a lot of useless heads and perhaps return some value to shareholders.
The irony of Level 3 being bought by the most staid of ILECs is rich.
Agreed, could not have happened to a better company. Schadenfreude is fun sometimes.
Hang on to your shares and you will be happy—-pass this advice on to your grandkids
I think Walter Scott said the same thing many moons ago….when LVLT was a lot higher than today. How did that work out? BTW, where is Walter? Is he still happy? I guess we all make mistakes….
It’s a classic roll-up except for the fact one is an ILEC and the other a CLEC/Fiber carrier. Culture clash will slow them down but they really had little choice. Their primary competitors are AT&T, Verizon & Comcast/Charter. AT&T and Verizon have wireless to bundle for their business customers and neither Centurylink and Level 3 had an answer – and now the cableco’s are entering their enterprise space in a big way and both CTL and LVLT are getting squeezed out. Only choice is becoming more of a infrastructure fiber carrier – the low cost high cap fiber provider – and cut ton’s of costs by getting rid of dead weight at the ILEC. Lots and lots of synergies to be had! Even then – the combined company will have to sell out to the winners of the wireless wars somewhere down the line…
As a long time attorney for enterprise buyers I think there is at least some cause for optimism here, mainly because the creation of a substantial wireline entity offers the possibility of a “strong third” in a segment in desperate need of one — customers are not well served by a segment served by the Titans and the Seven Dwarfs. Level 3’s acquisition of tw telecom gave it a bunch of pierced (as opposed to passed) buildings, which is a good thing for large users looking for some competition even if most buildings continue to have only one serving wireline carrier. This new, larger entity will have a mountain states base and some real capability in the rest of the country to go head to head with AT&T and VZ in the WAN space, and that can’t be bad.
That said, the lack of wireless in an industry now dominated by it is a real weakness, even if AT&T and VZ don’t [yet] meaningfully combine wireless and wireline offerings to meet customer needs. I’m feeling [wishing for?] a bid for Sprint or T-Mobile, though I wouldn’t want to bet the farm on making it work.
The point is that creating a big entity is not per se anti-competitive. What matters is whether net competition in the market increases, and in this case it does.
I didn’t know anyone cared about AT&T or Verizon in the WAN space.
An ILEC buying an international carrier … we have already seen something similar with Verizon and MCI/Worldcom some years ago. But does Verizon profit from this transaction today?
MCI/Worldcom had built a lot of infrastructure in and between several countries and was an important ip-transit and voice carrier years ago. Is Verizon really able to use this “heritage” in an efficient way today?
Now they are #12 in the voice carrier ranking of telegeography, as you can see on https://www.telegeography.com/research-services/telegeography-report-database/index.html
And they are #7 in the ip-transit ranking of dyn.com, as you can see on
http://hub.dyn.com/dyn-blog/a-baker-s-dozen-2015-edition
The wholesale offerings on http://www22.verizon.com/wholesale/sitemap/Site-Map.html seem very us-centric and somehow “bureaucratic” for me. Are they really attractive for international voice carriers or ISPs? I have a feeling that this is more a wholesale offering of the Verizon ILEC part in the U.S. and not of the international Verizon part (ex. MCI / Worldcom / Alter.net)? But I can´t find any specific “international wholesale” site of Verizon.
So the question is: How would a combined “CenturyLinkLevel3” carrier look like? Would it still be interested in the business outside the U.S. – for example in South America or in Europe? After the deal with Global Crossing they have a lot of international infrastucture. Does a local ILEC really know what customers on other continents need and want from a global carrier?