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 recent news about Global Crossing and Level 3, check out:
- Level 3 Spruces Up Fiber Routes
- Global Crossing Preps Major US Upgrade
- Global Crossing Decries Toll Booths
- Global Crossing: Buying or Selling? Maybe Both!
- Level 3 Expands European Network
- Comcast: Level 3 Balks at Trial Offer