CenturyLink Splashes $34B on Level 3 Buy

Mari Silbey
News Analysis
Mari Silbey, Senior Editor, Cable/Video

Boosting its credentials further in the ranks of top-tier telecom companies, CenturyLink today announced that it intends to acquire Level 3 Communications in a cash and stock deal valued at approximately $34 billion including debt. (See CenturyLink Agrees to Acquire Level 3.)

The news follows rumors of a merger late last week and, if completed, will create a company that combines a massive enterprise customer base with a network footprint spanning more than 60 countries. (See Level 3, CenturyLink on Verge of Merger.)

The share price for Level 3 Communications Inc. (NYSE: LVLT) angled higher this morning, up roughly 5% since the end of trading on Friday. CenturyLink Inc. (NYSE: CTL) shares were down, dropping more than 10% since Friday's close of business.

News of the acquisition comes as mega-merger deals are cropping up throughout the telecom and networking industry. Although AT&T Inc. (NYSE: T)'s proposed buyout of Time Warner Inc. (NYSE: TWX) and Qualcomm Inc. (Nasdaq: QCOM)'s proposed acquisition of NXP Semiconductors N.V. (Nasdaq: NXPI) target very different assets, all three deals now in the works highlight the premium executives are placing on gaining scale to best their competitors. (See AT&T's $85B Time Warner Takeover Is a Media Game Changer and Qualcomm Makes $39B Bet on NXP.)

For CenturyLink's part, the company is focusing on the build-up of its enterprise business, which will account for 76% of revenue, or approximately $19 billion, following the close of the transaction. CenturyLink says that 65% of the company's revenue, or $13 billion, will come from strategic services.

CenturyLink also serves the residential market, but does not come close in that sector to the size of competitors like AT&T or the larger US cable providers. Consumer market revenues for the telco in the third quarter were $1.47 billion, down 2.5% from the year-ago quarter thanks largely to declines in wireline voice revenues.

Both CenturyLink and Level 3 also posted quarterly earnings reports today to coincide with the acquisition announcement. CenturyLink reported $4.38 billion in revenues for the quarter, matching analyst estimates, but dropping below the $4.55 billion it earned in the third quarter of 2015. Earnings-per-share came in at $0.56, one penny better than analyst estimates of $0.55 according to StreetInsider.

Level 3 reported $2.033 billion in revenue for the quarter compared to $2.037 billion a year ago, and basic earnings per share of $0.40, down from $0.48 in the third quarter of 2015. Analysts' average consensus estimates were $2.07 billion for revenue and $0.42 EPS, according to News Oracle.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

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