Telecommunications company CenturyLink is upgrading its network with the acquisition of Internet backbone provider Level 3 Communications in a deal valued at $34 billion.
In the cash and stock transaction, Level 3 shareholders will get $26.50 and 1.4286 shares of CenturyLink stock for each share of Level 3 stock. At $66.50 per Level 3 share, that represents a premium of about 42% over Level 3 closing share price of $46.92 on Oct. 26. Included debt brings the deal to $34 billion, the companies said.
When the transaction closes, expected by the third quarter of 2017, CenturyLink shareholders will own about 51% of the combined company, with Level 3 shareholders owning about 49%.
The deal expands the reach of Monroe, La.-based CenturyLink, which is currently the No. 3 wireline provider in the U.S., delivering broadband and phone service to businesses and consumers in 37 states. CenturyLink's addition of Level 3, which provides Net infrastructure connections and cloud services in 500 markets in more than 60 countries, brings diversity at a time of consolidation in the telecom sector with recent deals including Charter Communication's $79 billion acquisition of Time Warner Cable.
"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," said CenturyLink CEO and President Glen Post in a statement.
Post will remain as CEO; Level 3 Chief Financial Officer Sunit Patel will serve as the combined company's CFO. The company will maintain a large presence in the Denver, Colo. area, where Level 3 is headquartered.
Level 3 (LVLT) shares closed up nearly 4% Monday to $56.15, while CenturyLink (CLT) stock fell more than 12% to $26.58.
The combined companies will have "a greater geographic footprint, scale ... and more robust broadband infrastructure," said Angelo Zino, equity analyst with CFRA Research in a note to investors Monday.
Both companies also announced third-quarter earnings Monday. CenturyLink reported adjusted earnings per share of 56 cents, compared to 70 cents in the July-September period a year ago, beating the $0.55 estimate of analysts polled by S&P Global Market Intelligence. Net income of $305 million was down 21% from $390 million last year, but beat expectations of $291.8 million.
Level 3 earnings of 39 cents, compared to 48 cents a year ago, fell short of Wall Street's expectations of 41 cents. Net income of $143 million missed expectations of $147.8 million.
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