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Level 3, Global Crossing: Merger Presents No Competition Concerns

The merger between Global Crossing and Level 3 Communications does not raise any competition or public interest concerns, the telecommunications carriers asserted last month in a Federal Communications Commission filing seeking approval for the $3 billion transaction.

U.S. regulators dont need to impose specific conditions in order to approve the merger or conduct an extended review of the transaction, Global Crossing and Level 3 wrote in the FCC application dated May 12.

Level 3 announced plans in April to acquire Global Crossing in a tax-free, stock-for-stock agreement that would create a company with ownership over networks in more than 50 countries and connections to more than 70 countries.

The FCC must review the merger to determine whether it will serve the public interest, convenience and necessity.

Global Crossing and Level 3 said the transaction will meet that test by offering customers an expanded suite of services globally-delivered transport, Internet protocol-based data, content delivery, data center, collocation, and voice services and more extensive geographic reach in North America, Latin America, Europe, and Asia with a combination of intercity and metro networks and undersea cable facilities.”

The merger also will help Level 3 compete with larger rivals, such as AT&T and Verizon Business, according to the FCC filing.

In a public notice last week, the FCC set forth the deadlines for filing comments on the merger.

Organized as a Bermuda-exempted limited liability company with principal executive offices in Hamilton, Bermuda, and principal administrative offices in Florham Park, N.J., Global Crossing (through its subsidiaries) owns a global IP-based fiber-optic network directly connecting more than 300 cities in 30 countries. Global Crossing supports corporations, government agencies and telecommunications carriers. Its competitor, Level 3, is a Delaware corporation headquartered in Broomfield, Colo. Level 3 offers IP-based services, broadband transport, collocation and other services over a fiber-optic network in North America, Europe and Asia.

The merger would create a communications company with pro forma combined 2010 revenues of $6.26 billion.

In the FCC filing, the companies argued that the merger would not adversely affect competition in any geographic market for undersea cable capacity.” Subsidiaries of the companies only own overlapping undersea cable infrastructure on the trans-Atlantic route, which the companies assert is one of the most competitive routes in the world. The trans-Atlantic undersea cable systems controlled by Global Crossing and Level 3 represent 3,635 Gbps, or 27.99 percent, of the estimated 2010 active trans-Atlantic capacity and as of last year only 16 percent of the potential capacity on the route was in service, according to the FCC filing.

The application raises no competition or public interest concerns that would merit consideration outside the Commissions streamlined process,” Global Crossing and Level 3 stated.

Based on Level 3s closing price ($1.44) on April 8, 2011, the merger is valued at $23.04 per Global Crossing common or preferred share, or roughly $3 billion, which includes the assumption of $1.1 billion in net debt at the end of last year. The agreement calls for Global Crossing shareholders to receive 16 shares of Level 3 common stock for each share of Global Crossing common stock or preferred stock that is owned at closing. Singapore Technologies Telemedia Pte Ltd. (ST Telemedia), which owns 59.9 percent of Global Crossing, will initially own a 24.47 percent indirect interest in Level 3 under the merger. ST Telemedias interest could not exceed 34.5 percent without written consent of the majority of Level 3s board of directors (excluding directors designed by ST Telemedia), according to the FCC filing.

Level 3 and Global Crossing asked the FCC to review the merger under a streamlined process, but the agency denied that request. Level 3 was not immediately available to explain the consequences of the denial, including how it might impact the anticipated date for FCC approval. The companies previously said they expected the merger to close before the end of the year.


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