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CenturyLink and Level 3 confirm $34B megamerger

The rumours were correct: On Monday, CenturyLink and Level 3 Communications announced a definitive merger agreement valued at $34 billion (€30.8 billion) that will create the second-largest domestic communications provider in the US.

The deal is expected to close by the end of third quarter 2017.

This transaction increases CenturyLink's network by 200,000 route miles of fibre, which includes 64,000 route miles in 350 metropolitan areas and 33,000 subsea route miles connecting multiple continents. Accounting for duplication, CenturyLink's on-net buildings are expected to increase by nearly 75 per cent to approximately 75,000, including 10,000 buildings in EMEA and Latin America.

Together the companies expect to achieve nearly one billion dollars in synergies annually, which will enhance their ability to invest in network improvements for all its customers.

But the key target market for the combined company will be enterprise customers, which are expected to account for 76 percent of its revenue, they said.

"The digital economy relies on broadband connectivity, and together with Level 3 we will have one of the most robust fibre network and high-speed data services companies in the world," said Glen Post, chief executive officer and president CenturyLink. "It is this focus on providing fibre connectivity that will continue to distinguish CenturyLink from our competitors.

Under terms of the transaction, 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, which implies a purchase price of $66.50 per Level 3 share (based on a CenturyLink $28.00 per share reference price). This represents a premium of approximately 42 per cent based on the last trading day prior to market speculation about a potential deal.

Upon closing, CenturyLink shareholders will own approximately 51 per cent of the combined company, which will be headquartered in CenturyLink’s current home of Monroe, Louisiana – although the new company plans to maintain “a significant presence” in Level 3’s home area of Colorado and the Denver metropolitan area.

CenturyLink chief executive officer and president Glenn Post will continue in that role once the deal closes, while Sunit Patel of Level 3 will serve as the chief financial officer.

The value of the deal includes debt assumed. CenturyLink intends to finance the cash portion of the transaction and pay fees and expenses through a combination of cash on hand at CenturyLink and Level 3, and approximately $7 billion of additional indebtedness. The service provider has received financing commitments from BofA Merrill Lynch and Morgan Stanley & Co. LLC totalling $10.2 billion, which includes the refinancing of debt that is expected to mature prior to closing of the transaction. All existing indebtedness of Level 3 will be unaffected.

The transaction is subject to regulatory approvals, including review by the U.S. Federal Communications Commission, as well as the approval of CenturyLink and Level 3 shareholders.



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