Level 3 Buying Global Crossing

Level 3 Communications Inc. (NYSE: LVLT) hit the M&A trail Monday, announcing that it would buy Global Crossing (Nasdaq: GLBC) in a stock-for-stock deal valued at US$1.9 billion (after assumed debt) that will create a company that had combined 2010 revenues of $6.26 billion. (See Level 3 to Buy Global Crossing .)

The deal comes into play about eight months after Global Crossing CEO John Legere indentified Global Crossing, Level 3, Paetec Communications Inc. (Nasdaq: PAET), Savvis (Nasdaq: SVVS), XO Communications Inc. and tw telecom inc. (Nasdaq: TWTC) as candidates that might come together in some way to establish a strong third player to compete with AT&T Inc. (NYSE: T) and Verizon Enterprise Solutions . (See Global Crossing: Buying or Selling? Maybe Both!)

Under the deal announced Monday, Global Crossing shareholders are to receive 16 shares of Level 3 common stock for each share of Global common stock or preferred stock that is owned at closing. Based on Level 3's closing stock price on April 8, the deal is valued at $23.04 per Global Crossing common or preferred share, or roughly $3 billion, including the assumption of about $1.1 billion of net debt.

Together, the companies intend to offer a menu of transport, IP and data services, content delivery, data center, collocation and voice services. Global Crossing will also pitch in elements such as managed services and inter-continental virtual private networking capabilities.

They hope to close the deal before the end of the year.

Why this matters
In the hope of driving up shareholder value, Level 3 and Global Crossing are playing up the "complementary fit" of the two companies' networks.

The deal will tie together two major operators of fiber optic networks anchored on three continents and linked by an extensive network of undersea facilities. In terms of global reach, Level 3 and Global Crossing say they own networks in more than 50 countries to go with connections to more than 70 countries.

On the money side, they hope to generate adjusted EBITDA synergies of about $300 million while reducing annual capital expenditures of $40 million. Level 3 estimates that the "net present value of the potential synergies will be approximately $2.5 billion," with 39 percent coming from network expense savings, 49 percent from operating expense savings, and about 12 percent from capex reductions.

Level 3 also expects to incur between $200 million to $225 million of integration costs, with 55 percent tied to operating expenses and the balance going toward capex and "support integration activities." Level 3 Financing, a subsidiary of Level 3, has already received committed financing of $1.75 billion for the deal.

For more
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— Jeff Baumgartner, Site Editor, Light Reading Cable

Tatia 12/5/2012 | 5:08:05 PM
re: Level 3 Buying Global Crossing

MarketVisual found several indirect connections mapped between Level 3 and Global Crossing via the executive team. View the interactive Relationship Map http://goo.gl/uXKzQ

Pete Baldwin 12/5/2012 | 5:08:04 PM
re: Level 3 Buying Global Crossing

Hey, a big merger that's "complementary." There's a shock.

Jeff Baumgartner 12/5/2012 | 5:08:03 PM
re: Level 3 Buying Global Crossing

 Right. We're still waiting for a big merger when the two sides tout how one' side's apples  go well with the other's oranges. JB


Pete Baldwin 12/5/2012 | 5:08:01 PM
re: Level 3 Buying Global Crossing

Ironically, that's usually what they mean by "complementary" -- that the companies are so different that shareholders don't have to worry about overlap.

I'm waiting for the merger announcements that say:

"Yeah, these guys have been an annoying small competitor for a while, so we're just gonna take them out."


"Neither one of us was gonna make it in this market, so we figured we'd join forces." (Actually, Bookham and Avanex might have come close to saying this when they merged, since the situation was rather obvious.)

The first statement doesn't apply to Global 3 or Level Crossing, of course. The second one doesn't apply as literally as in Bookham/Avanex, but... well.....

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