Big Telecom M&A News: CenturyLink to Acquire Level 3 in $34B Deal

Well, here we have it. The next big telecom M&A was announced today: CenturyLink confirmed it will acquire Level 3 Communications for a reported $25 billion plus the Level 3 debt assumed, totaling a $34 billion deal. This acquisition creates what will be the second largest domestic provider in the US, rivaling AT&T and Verizon in targeting global enterprise customers.

Here's a quick recap from CenturyLink on what the new deal signifies:

• New company will be the second largest Domestic Communications Provider serving global enterprise customers
• Combined company will deliver Comprehensive Services and Solutions Over an Owned Network that Connects More Than 350 Metropolitan Areas with Approximately 75,000 On-Net Buildings
• The combined company will be headquartered in Monroe, Louisiana, and will maintain a significant presence in Colorado and the Denver metropolitan area. Level 3 will become a subsidiary of CenturyLink.
• 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.)
• Enhanced competitive offerings in business network services; enhanced broadband infrastructure
• Transaction Valued at approximately $34 Billion
• Strong financial profile, improved dividend coverage: Expect to Achieve $975 Million in Annual Run-Rate Cash Synergies that will Enhance Ability to Invest in Advanced Networks
• Transaction Expected to be Accretive to Free Cash Flow in First Year Following Close and Significantly Accretive on an Annual Run-Rate Basis
• Expect to Maintain CenturyLink's Annual Dividend of $2.16 Per Share

Based on agreement terms, Level 3 shareholders will receive $26.50 per share in cash and a fixed exchange ratio of 1.4286 shares of CenturyLink stock for each Level 3 share they own. This implies a purchase price of $66.50 per Level 3 share (based on a CenturyLink $28.00 per share reference price) and a premium of approximately 42 percent based on Level 3's unaffected closing share price of $46.92 on October 26, 2016, the last trading day prior to market speculation about a potential transaction. After closing the deal following regulatory approvals, CenturyLink shareholders will own approximately 51 percent and Level 3 shareholders will own approximately 49 percent of the combined company.

Glen Post, CenturyLink Chief Executive Officer and President will continue to serve as such for the company while Level 3's Sunit Patel will stay on as CFO. The current Chairman of CenturyLink's Board will continue to serve as Chairman of the combined company, and CenturyLink has agreed to appoint four Level 3 Board members at closing, one of whom will be a representative of STT Crossing, a wholly owned subsidiary of ST Telemedia.

"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 Post. "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."

By acquiring Level 3, 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. Additionally, the combined company will be positioned to further invest in the reach and speeds of its broadband infrastructure for small businesses and consumers.

“When Jeff and I got together a few months ago, we talked about the industry and the possible benefits of bringing these companies together,” said Glen Post, CEO of CenturyLink, during a press conference. “The more we considered the possible benefits of bringing these companies together complementary products and services that we were building, we took a hard look at synergies and said this is a transaction we have to consider and realized that we could put the companies together.”

"This is a compelling transaction for our customers, shareholders and employees," said Jeff Storey, President and Chief Executive Officer 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."

Read the full release here.