News
Deal transforms U.S. telco into a global high-speed networking and enterprise services provider.
CenturyLink on Monday agreed to acquire Level 3 Communications in a merger worth $34 billion (€31.06 billion), confirming rumours last week that claimed the two were negotiating a deal.
Purchasing Level 3 will add 200,000 route miles of fibre, including 64,000 miles in 350 metropolitan areas, and 33,000 miles of subsea cable, to CenturyLink’s footprint. CenturyLink’s on-net buildings will grow by 75% to 75,000, which includes 10,000 buildings in EMEA and Latin America.
"Together with Level 3 we will have one of the most robust fibre network and high-speed data services companies in the world," said CenturyLink CEO Glen Post, in a statement.
Under the terms of the deal, Level 3 shareholders will be paid $26.50 and will receive 1.43 CenturyLink shares for each share they own, implying a purchase price of $66.50 per Level 3 share. The offer represents a 42% premium on Level 3’s closing share price on 26 October, which was just before the deal rumours emerged.
"The combined company will have significantly improved network capabilities, creating a world-class enterprise player with approximately $19 billion in pro forma business revenue and $13 billion in business strategic revenue, for the trailing twelve months ended 30 June 2016," CenturyLink said, adding that 76% of the combined company’s revenue will come from serving business customers.
Upon closing the transaction – which is expected to happen by the end of the third quarter of 2017 – CenturyLink will own 51% of the merged entity, and Level 3 will own the remaining 49%. CenturyLink said it will fund the takeover through a combination of cash on hand and $7 billion of new debt.
The deal is expected to generate $975 million of annual run-rate synergies.
"This is a compelling transaction for our customers, shareholders and employees," said Level 3 CEO Jeff Storey. "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."
CenturyLink CEO Glen Post will lead the combined company, and Level 3 finance chief Sunit Patel will serve as CFO. There was no mention of Storey being given a role, which suggests he will move on to new pastures.
CenturyLink has also agreed to appoint four Level 3 board members to its board, which will be led by whoever is serving as chair of CenturyLink when the deal closes.
"This transaction furthers our commitment to providing our customers with the network to improve their lives and strengthen their businesses. It is this focus on providing fibre connectivity that will continue to distinguish CenturyLink from our competitors," Post said.
Rumours of Monday’s deal were first reported by the Wall Street Journal late last week.
Level 3 was traditionally a network provider but has made aggressive moves into the enterprise services market, adding scale along the way through substantial acquisitions, including 2014’s $5.7 billion purchase of TW Telecom, and the $1.9 billion acquisition of Global Crossing in 2011.
Meanwhile, CenturyLink, which started life as a rural telco, has been steadily growing its enterprise revenues.
In the second quarter, CenturyLink’s business segment generated nearly two-thirds of its total operating revenue, with consumer making up the remaining third. Two years earlier, the split between consumer and business was 50:50.
Like Level 3, CenturyLink has an acquisitive history: in 2008, it agreed to acquire Embarq; in April 2010 it agreed to acquire Qwest; and almost exactly one year later, CenturyLink agreed to acquire Savvis.
CenturyLink has made a number of smaller acquisitions since then, including platform-as-a-service (PaaS) provider AppFog and Infrastructure-as-a-Service (IaaS) firm Tier 3 in 2013, and analytics specialist Cognilytics in 2014.
