CenturyLink to acquire Broomfield-based Level 3 for $25B

BROOMFIELD — CenturyLink and Broomfield-based Level 3 Communications Inc. announced Monday morning that the former plans to acquire the latter for roughly $25 billion in cash and stock, a move that means the loss of a major corporate headquarters for Colorado as well as the possibility of significant job cuts.

The news followed a report on Thursday that the two telecommunications companies were in advanced merger talks.

Company officials said they expect the deal to close in the third quarter of next year. While they said the merged firm will maintain a significant presence in Colorado, the combined headquarters will be in CenturyLink’s home of Monroe, La.

The companies said the deal would result in $975 million in annual synergies, “primarily from the elimination of duplicative functions, systems consolidation, and increased operational and capital efficiencies.”

CenturyLink (NYSE: CTL) plans to pay Level 3 shareholders $26.50 per share in cash, plus 1.4286 shares of CenturyLink stock for each share of Level 3 they own. Based on Friday’s closing price for CenturyLink stock of $30.39, the exchange ratio puts the price of Level 3 (NYSE: LVLT) at roughly $25.2 billion, or $69.92 per share. The two companies said the full value of the deal is about $34 billion including the assumption of debt.

Level 3 shares closed at $46.92 on Oct. 26, the day before news of the pending merger broke. After closing at $54.05 Friday, Level 3 shares were up another 5 percent in pre-market trading Monday following the companies’ announcement. CenturyLink shares, meanwhile, were down 10.5 percent pre-market.

CenturyLink shareholders will own 51 percent of the combined company, while Level 3 shareholders will wind up owning 49 percent.

Both companies’ boards of directors have unanimously approved the deal, which will still require shareholder and regulatory approvals.

Glen Post will remain CEO and president of CenturyLink following the merger, while Level 3 chief financial officer Sunit Patel is slated to serve in that role for the combined company. The chairman of CenturyLink’s board will continue in that role, while CenturyLink will appoint four Level 3 board members.

CenturyLink will pay for the cash portion of the deal with a combination of cash and debt.

Level 3 provides a variety of communications services for business customers worldwide, including a large network of long-haul fiber-optic cable between cities, voice and data, Ethernet, content distribution, and data center and cloud services. Monroe, La.-based CenturyLink, which acquired Denver-based Qwest in 2011, is perhaps best-known for providing phone and internet service but also provides significant business and data center services.

Company officials said the deal combines CenturyLink’s larger enterprise customer base with Level 3’s global footprint. The combined company will derive 76 percent of its revenue from business customers.

CenturyLink’s network will grow by 200,000 route miles of fiber, including 64,000 route miles in 350 metro areas and 33,000 subsea route miles. The combined company will have about 75,000 on-net buildings.

“This is a compelling transaction for our customers, shareholders and employees,” Level 3 CEO and president Jeff Storey said in a news release. “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.”

In addition to the merger announcement, both companies reported third-quarter earnings on Monday morning.

Level 3 posted net income of $143 million, or 39 cents per diluted share. Revenue for the quarter came in at $2.03 billion, down from $2.06 billion a year earlier.

CenturyLink, meanwhile, had net income of $152 million, or 28 cents per share. Revenue was $4.4 billion, down 3.8 percent from a year earlier.

The two companies posted combined 2015 revenue of $26.1 billion.

“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,” Post said in the news release. “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.”

Level 3 in late 2014 acquired rival TW Telecom for roughly $6 billion, and kept its Broomfield headquarters. That deal was expected at the time to provide $240 million in annual cost savings. At the end of 2014, just a couple of months after that merger was complete, Level 3 employed 13,500 people according to its end-of-year financial report filed with the Securities and Exchange Commission. By the end of 2015, however, Level 3 had shed 1,000 employees and has reportedly cut more this year. It’s unclear how many people the company employs in Broomfield, though at the time of the TW Telecom acquisition, that figure stood at about 2,400.

Founded in 1985 as a subsidiary of Peter Kiewit Sons’ Inc., Level 3 has grown steadily through network expansions and acquisitions of companies such as TW Telecom, Progress Telecom, ICG and Global Crossing.

CenturyLink employed 42,800 people as of June 30, down about 1,600 from 12 months earlier.

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