The speculation was accurate -- CenturyLink (NYSE: CTL) and Level 3 Communications, Inc. (NYSE: LVLT) will merge, with the former paying approximately $34 billion in cash and stock for the latter, including debt assumption.
CenturyLink will pay Level 3 shareholders $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, which totals $66.50 per Level 3 share (based on a CenturyLink $28.00 per share reference price). This represents a premium of approximately 42% based on Level 3's unaffected closing share price of $46.92 on October 26, 2016. When the dust settles, current CenturyLink shareholders will own approximately 51% percent of the combined company.
The companies expect the deal to close by the end of third quarter of 2017.
The combined company will become a global business services powerhouse with a combined presence in more than 60 countries. CenturyLink says the addition of Level 3's assets will add 200,000 route miles of fiber to its current footprint. The additional fiber-optic network infrastructure includes 64,000 route miles in 350 metropolitan areas and 33,000 undersea cable route miles that connect multiple continents. CenturyLink's on-net buildings will increase by nearly 75% to approximately 75,000, including 10,000 buildings in EMEA and Latin America, the company estimates.
CenturyLink expects 76% of the combined company's revenues will come from business customers, with 65% of the combined company's core revenues deriving from strategic services. CenturyLink predicts the deal will 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 afterward.
The company also expects to create $975 million in annual run-rate cash synergies, primarily from the elimination of duplicate functions, systems consolidation, and increased operational and capital efficiencies.
CenturyLink says that its current president and CEO, Glen Post, will retain those titles within the combined company. Sunit Patel, executive vice president and CFO of Level 3, will be CFO of the combined company. Whoever is chairman of CenturyLink's board when the deal closes will remain in place within the combined company and oversee a board that will contain four Level 3 board members, one of whom will be a representative of STT Crossing (a wholly owned subsidiary of ST Telemedia).
The combined company will be headquartered in CenturyLink's current home of Monroe, LA, but will retain "a significant presence" in Level 3's Colorado and Denver metropolitan area home.
CenturyLink plans to use a combination of cash on hand at CenturyLink and Level 3 and approximately $7 billion of additional indebtedness to fund the deal. CenturyLink says it has received financing commitments from BofA Merrill Lynch and Morgan Stanley & Co. LLC totaling approximately $10.2 billion for new secured debt facilities. The financing comprises a new $2 billion secured revolving credit facility and approximately $8.2 billion of other secured debt facilities, including the refinancing of indebtedness expected to mature prior to closing of the transaction.
In addition to shareholder approval, the deal will need several levels of approval, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, review by the U.S. Federal Communications Commission, state regulatory approvals, and other customary closing conditions.
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