CenturyLink Lands Level 3 Communications for $34 Billion

By Steve Anderson October 31, 2016

Easily one of the biggest developments in the merger and acquisition space this month, news recently emerged about CenturyLink, who agreed to purchase Level 3 Communications. The deal represented both cash and stock for a combined total of nearly $34 billion all told, and leaves CenturyLink as one of the biggest names around in handling Internet traffic.

In doing so, CenturyLink effectively valued Level 3 at $66.50 a share, reports noted. That by itself wouldn't mean so much, but it reportedly represents a premium of about 42 percent over last week's trading. That makes it pretty clear; CenturyLink wanted Level 3, and wanted it pretty badly. So why was CenturyLink willing to pay so much for Level 3? Based on the current market profile, reports suggest that CenturyLink wanted to be in a better position to take on other Internet heavyweights like AT&T and Verizon. Plus, CenturyLink now has access to some new high-end network security products, which should be helpful given the popularity of network protection mechanisms in an environment where data breaches are an ongoing fact of life.

Leadership is set to remain static, as CenturyLink's CEO Glen Post will remain CEO, and Level 3's CFO Sunit Patel will stay CFO. Reports suggest that regulatory hurdles in the way of this deal should stay comparatively quiet, and let the deal go through with minimum of fuss.

It certainly didn't hurt that CenturyLink now has access to $10 billion in tax credits that Level 3 had on hand, though reports note that CenturyLink only plans to use less than $2 billion of these annually as a credit against taxes. Interestingly, though the deal drove shares of Level 3 up to $56.58, still below the offer value, it also drove shares of CenturyLink down to its biggest loss in over three and a half years.

Thus the market seems less than happy about this arrangement, though given CenturyLink's motivations, it's odd that it would respond this way. Perhaps investors think CenturyLink overpaid; that's not out of line given the sheer amount of cash CenturyLink shelled out. Considering that it got an instant 30 percent discount, roughly, thanks to those tax credits should have ameliorated any hesitation. Maybe investors think that the acquisition of Level 3 won't be enough to drive a rolling battle with the likes of AT&T and Verizon, and thus, CenturyLink basically spent a quarter to make a dime. Also possible, but given how much demand there is for bandwidth these days it would seem any move on this front would be well-received.

Still, it's looking like a good move for CenturyLink, even if the market doesn't agree just yet. Only time will tell how well it all goes over, but CenturyLink has a much bigger presence now than it did before.




Edited by Alicia Young

Contributing Writer

SHARE THIS ARTICLE
Related Articles

Pai Makes His Case for Title II Repeal

By: Paula Bernier    11/21/2017

FCC Chairman Ajit Pai today made clear his plans to repeal Title II net neutrality rules. The commission is expected to pass his proposal at its Dec. …

Read More

Mist Applies AI to Improve Wi-Fi

By: Paula Bernier    11/9/2017

Mist has created an AI-driven wireless platform that puts the user and his or mobile device at the heart of the wireless network. Combining machine le…

Read More

International Tech Innovation Growing, Says Consumer Technology Association

By: Doug Mohney    11/8/2017

The Consumer Technology Association (CTA) is best known for the world's largest trade event, but the organization's reach is growing far beyond the CE…

Read More

Broadcom Makes Unsolicited $130B Bid for Qualcomm

By: Paula Bernier    11/6/2017

In what could result in the biggest tech deal in history, semiconductor company Broadcom has made an offer to buy Qualcomm for a whopping $130 billion…

Read More

How Google's 'Moonshot' Could Benefit Industrial Markets

By: Kayla Matthews    10/30/2017

The term "moonshot" encapsulates the spirit of technological achievement: an accomplishment so ambitious, so improbable, that it's equivalent to sendi…

Read More