CenturyLink, a provider of communications and high-speed Internet services in parts of the Triangle as well as much of eastern North Carolina, is buying Levl 3 Communications for $24 billion.
The deal was announced early Monday.
CenturyLink services areas long held by Sprint, which ultimately sold its landline operations to become a cellular provider.
The company launched its own high-speed Internet service in parts of the region last year.
“The digital economy relies on broadband connectivity, and together with Level 3 we will have one of the most robust fiber network and high-speed data services companies in the world,” said Glen Post, CenturyLink Chief Executive Officer and President, in the acquisition announcement.
“This transaction furthers our commitment to providing our customers with the network to improve their lives and strengthen their businesses. 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.”
CenturyLink wants to expand its telecommunication services for businesses.
The firm already provides internet, TV and phone services to consumers, as well as data and IT services for businesses. Level 3 provides data, video and other communication services to businesses and government agencies.
Level 3 shareholders will receive about $66.50 in cash and a portion of CenturyLink stock for each share of Level 3 they own. The companies valued the deal at $34 billion, when debt is included.
The combined company will be based at CenturyLink’s headquarters in Monroe, Louisiana. Level 3 is based in Broomfield, Colorado.
“This is a compelling transaction for our customers, shareholders and employees,” said Jeff Storey, CEO of Level 3. “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.”
Shares of CenturyLink Inc. fell 6.7 percent to $38.35 before the stock market opened Monday, while Level 3 Communications Inc. shares rose 6.8 percent to $57.70.
CenturyLink, AT&T and Frontier Communications are also among the communication firms that have accepted millions in federal funding to expand broadband access to underserved areas.
7 strategic and Financial Benefits: Why make the deal
What the companies said in the announcement:
- Highly Complementary Businesses with Expanded Fiber Networks: This 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 approximately 75,000, including 10,000 buildings in EMEA and Latin America. Overall, the complementary domestic and international networks will provide cost efficiencies by focusing capital investment on increasing capacity and extending the reach of the combined company’s high-bandwidth fiber network.
- Enhanced Competitive Offerings in Business Network Services: The combined company will have significantly 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 twelve months ended June 30, 2016. Together, CenturyLink’s and Level 3’s revenue will be 76 percent derived from business customers, and 65 percent of the combined company’s core revenue will be from strategic services. Given the complementary nature of the portfolios, the combined company will offer an even broader range of services and solutions to meet customers’ demand for more bandwidth and new applications in an increasingly complex operating environment.
- Enhanced Broadband Infrastructure: This transaction will provide the combined company with increased opportunity to invest in its broadband infrastructure and enhance broadband speed for small businesses and consumers.
- Strong Financial Profile: The combined company is expected to have improved adjusted EBITDA margins, revenue growth and pro forma net leverage of less than 3.7x at close, including run-rate synergies. The combined company will benefit from Level 3’s nearly $10 billion of net operating losses (“NOLs”). These NOLs will substantially reduce the combined company’s net cash tax expense over the next several years, positioning it to generate substantial free cash flow.
- Improved Dividend Coverage: The improved free cash flow will enhance the combined company’s financial flexibility and significantly lower its payout ratio. CenturyLink expects to maintain its annual dividend of $2.16 per share.
- Significantly Accretive to Free Cash Flow with Multiple Opportunities for Growth: CenturyLink expects the transaction to be accretive to free cash flow in the first full year following the close of the transaction and significantly accretive on an annual run-rate basis thereafter. Furthermore, the transaction will be accretive to CenturyLink’s existing growth profile with additional upside opportunities, including the ability to deploy CenturyLink’s and Level 3’s product portfolio across the combined customer bases. With increased network scale, and dense local metro areas and global reach, the combined company will be positioned to further expand internationally.
- Substantial Run-Rate Synergies: Both companies have a proven ability to integrate and meet or exceed synergy targets. The increased scale afforded by the combined company is expected to generate $975 million of annual run-rate cash synergies, primarily from the elimination of duplicative functions, systems consolidation, and increased operational and capital efficiencies.