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It’s Official: CenturyLink Buying Level 3 in $34 Billion Deal

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Edward Gately**Editor’s Note: Please click here for a recap of the biggest channel-impacting mergers in July-August 2016.**

CenturyLink and Level 3 Communications on Monday confirmed that they are merging, with CenturyLink set to acquire Level 3 in a cash and stock transaction valued at about $34 billion, including debt.

CenturyLink's John DeLozierThe merger will create the second-largest domestic communications provider serving global enterprise customers. Both companies’ boards of directors have approved the merger.

When the transaction closes, anticipated by the end of third-quarter 2017, CenturyLink shareholders will own about 51 percent and Level 3 shareholders will own about 49 percent of the combined company.

John Delozier, vice president of CenturyLink Channel Alliance, tells Channel Partners it’s very early in the process with many details to be determined, and until the transaction closes, CenturyLink and Level 3 will operate as separate companies and it remains business as usual.{ad}

“Both CenturyLink and Level 3 have a strong track record of successfully integrating companies and we will leverage this experience to ensure a smooth transition to a combined company,” he said. “This is a transaction that benefits all stakeholders, including our strategic and channel alliance partners. We are bringing together two highly customer-and channel-focused organizations. Once the transaction is complete, our combined company will be able to provide even more opportunities to strengthen our relationships with industry-leading technology providers.”

Last week, before the merger announcement was made official, we asked key master agents what they thought about the proposed deal. Here are their thoughts.

CenturyLink said the combined company will have the ability to offer its larger enterprise customer base the “benefits of Level 3’s global footprint with a combined presence in more than 60 countries.” In addition, it will be positioned to “further invest in the reach and speeds of its broadband infrastructure for small businesses and consumers,” it said.

“This transaction furthers our commitment to providing our customers with the network to improve their lives and strengthen their businesses,” said Glen Post, CenturyLink’s president and CEO. “It is this focus on providing fiber connectivity that will continue to distinguish CenturyLink from our competitors. CenturyLink shareholders will benefit from the significant synergies and financial flexibility provided by the combined company’s revenue growth and strong cash flow. For employees, this combination will bring together two highly customer-focused organizations and provide employees growth and advancement opportunities the companies could not offer separately.”

The transaction increases CenturyLink’s network by 200,000 route miles of fiber, which includes 64,000 route miles in 350 metropolitan areas and 33,000 subsea route miles connecting multiple continents. Accounting for those served by both companies, CenturyLink’s on-net buildings are expected to increase by nearly 75 percent to about 75,000, including 10,000 buildings in EMEA and Latin America.

Also, the combined company will have 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 12 months ended June 30, 2016,” according to CenturyLink. Together, the companies’ revenue will be 76 percent derived from business customers, and 65 percent of the core revenue will be from strategic services.

At least one top analyst says the acquisition provides reasons for optimism in the channel.

“For channel partners, a combined CenturyLink and Level 3 ultimately means …

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… one less partner to choose from when recommending the right partner for their customers,” Frost & Sullivan analyst Michael Brandenburg told us. “At the same time, the acquisition will expand the depth and breadth of CenturyLink’s offerings, achieving some parity with its competitors. When complete, CenturyLink will likely be a more frequent option for the channel and agents.”

Brandenburg says to keep an eye on what CenturyLink does with Level 3’s voice and security services.

“Level 3 has always been laser-focused on the higher end enterprise customer, and as such, its value-added services, like Voice Complete, were tailored to match the specific needs of that market,” he said. “Channel partners, particularly those that catered to the midsize and enterprise customers, will have to be mindful on CenturyLink’s road map as they rationalize their service offerings.”

“This is a compelling transaction for our customers, shareholders and employees,” said Jeff Storey, Level 3’s president and CEO. “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.”

Level 3 referred further comment to CenturyLink.

After the deal closes, Post will continue to serve as president and CEO, and Sunit Patel, Level 3’s executive vice president and CFO, will serve as the combined company’s CFO.

Also Monday, both companies reported their third-quarter earnings. CenturyLink reported a nearly 26 percent decrease in profit compared to the year-ago quarter, from $205 million to $152 million, and a 3.8 percent decrease in operating revenues, from $4.55 billion to $4.38 billion.

CenturyLink’s business-segment revenue was $2.61 billion, an approximately 1 percent decline from the year-ago quarter, primarily due to a decline in legacy revenue, which was partially offset by 6 percent growth in high-bandwidth data services sales.

Wells Fargo analyst Jennifer Fritzsche said CenturyLink’s Q3 results were “largely in line with to slightly better than expectations,” but its fourth quarter outlook was light and implies a “miss” to its fiscal year 2016 guidance.

Level 3 reported $143 million in profit, up from just $1 million for the year-ago quarter, and $2.03 billion in revenue, down from $2.06 billion. Core network services revenue totaled $1.93 billion in the third quarter, down from $1.94 billion from a year ago.


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