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Lumen finds the right price for its Latin American business

Lumen Technologies announced it will sell its Latin American business to private equity company Stonepeak for $2.7 billion.

The transaction is noteworthy considering Lumen is in the process of trying to sell a portion of its consumer Internet service provider business in the US – for the second time in as many years. But Lumen might be having better luck this time around; a Bloomberg report from earlier this month indicated that Lumen was in advanced talks to sell a piece of its US-based consumer business to Apollo Global Management for $5 billion.

Lumen executives cheered the closure of the company's new deal with Stonepeak for its Latin American business. "This transaction allows Lumen to focus investments in key areas of the business to drive future growth while providing flexibility for our capital allocation strategy," Lumen President and CEO Jeff Storey said in a release.

Assets for sale

Storey just two months ago said Lumen was shopping its assets.

"We are actively looking at selling non-core assets to unlock value in our business," Storey said in early May, during his company's quarterly conference call with analysts. The company conducted a similar effort in 2019 that did not result in any deals. "If we find transactions that are positive to shareholders, we won't hesitate to move forward."

Lumen appears to have managed to move forward with Stonepeak. But that's not necessarily a surprise considering the private equity firm has been on the hunt for telecom assets around the world. For example, late last year Stonepeak inked a $8.1 billion deal to acquire Astound Broadband – a service provider conglomerate that runs RCN, Grande Communications, Wave Broadband and enTouch Systems – from TPG Capital and Patriot Media Management.

The financial analysts at Cowen predicted such deals in May. "We're seeing a renaissance of residential telco assets in play, once 'left for dead,' as the residential space is now awash with capital driven by the telcos themselves ... and interest from private equity/infrastructure funds looking for their own platforms," they wrote of Lumen's plans to sell its assets. "This renaissance is driven by low interest rates, the pandemic lockdown 'criticality of broadband' narrative, and subsequent permanency of at-home trends."

Lumen boasted that its deal with Stonepeak values its Latin American business at 9X its 2020 earnings before interest, taxes, depreciation, and amortization (EBITDA). Lumen said it plans to continue to serve customers in North America and the EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific), and will serve customers in Latin America through a new strategic partnership with Stonepeak.

Lumen acquired the vast majority of its Latin American business through its 2017 acquisition of Level 3, which had purchased Global Crossing in 2011.

Motivated seller

Whether Lumen's deal with Stonepeak paves the way for its reported negotiations with Apollo remains to be seen. Lumen covers around 2.5 million locations with fiber but fully 18.5 million locations with copper-based DSL in the US, and analysts generally expect the company to look to sell a large portion of those copper-based locations.

"While the [Latin American] sale doesn't do much to 'move the needle,' it is the first notable and executed proof point around management's desire to sell non-core assets ... as a potential sign of more to come, which includes its mass market business, or more specifically a partial sale of DSL homes," wrote the analysts at Cowen Monday after Lumen announced its deal with Stonepeak. However, they warned that a deal with the likes of Apollo might be "tough" given a buyer's likely need to upgrade most of those DSL locations to fiber.

Lumen's stock has been on a downward trajectory since early June, but rose slightly Monday to around $12 per share on news of the company's Latin American deal.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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