By Aaron Varghese
Money and Investing Writer
CenturyLink Inc. (NYSE: CTL), an American worldwide communications and data services company, has agreed to purchase one of their rivals, Level 3 Communications Inc. (NYSE: LVLT), a telecommunications and internet service provider.
CenturyLink offers Big Data analytics, data management, and IT consulting, while operating throughout regions of North America, Asia, and Europe. Level 3 Communications offers local and global communications services to government and enterprise customers while operating markets in over 60 countries across the globe.
The communications and service company has agreed to buy out its competitor for $34 billion, making it one of the biggest acquisitions in the telecommunications industry this year.
This acquisition of Level 3 Communications Inc. includes the assumption of its $9 billion debt as well. At the end of the transaction, it is expected that CenturyLink will own about 51 percent of Level 3, while Level 3’s shareholders hold the remaining 49 percent of the company.
CenturyLink CEO and President, Glen Post will remain CEO of the combined company and Level 3 Chief Executive Officer, Sunit Patel, will assume the position of CFO in the combined company.
Both companies had found themselves falling short in comparison to prominent competitors like AT&T and Verizon Communications Inc.
This acquisition can possibly put CenturyLink on the same playing field as these top competitors if all goes well. Most of the revenue from the combined company will come from strategic services and businesses.
Of course, it is expected that both companies will face some immediate repercussions reflected on their stock prices since the merger. Stock Prices for Level 3 peaked on Monday, October 31st, at $56.15 and have since dropped and leveled at about $51.50 as of Friday, November 4th.
CenturyLink experienced its most recent peak on Thursday, October 27 at $31.00. The stock prices since CenturyLink purchased Level 3 using cash and stocks have fell to $23.05 as of Friday, November 4th. Many analysts are wondering if this merger was legitimately beneficial for CenturyLink based upon the stock charts. With some exceptions, many firms have cut their price targets for CenturyLink.
Despite these negative responses to CenturyLink’s merger, new opportunities certainly present themselves as the customers and different services of Level 3 Communications are available for CenturyLink.
This merger gives CenturyLink an additional 200,000 miles of route fiber, providing approximately a 75 percent boost to the company’s on-net buildings.
The acquisition also enables CenturyLink to provide enhanced broadband speed to small businesses that were previously unable to be reached without the resources of Level 3 Communications.
The large net losses of Level 3 Communications also help significantly reduce the combined company’s net cash tax expenses for many years. Of course, these benefits will only present themselves if the financial state of the company recovers at an adequate time.
If the combined company takes too long to recover from the financial drawbacks associated with the acquisition, it will not be able to maintain adequate profitability and still remain second to the status of companies like AT&T and Verizon. CenturyLink has taken a necessary risk and only time will adequately tell if this acquisition will bring on the expected positive results.
A version of this article appeared in the Tuesday, November 8th print edition.
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