You could just see it coming, couldn’t you? First there was Unity, designed to make Level 3 Communications (LVLT) more efficient in selling, provisioning, and servicing its customers – and hence requiring fewer people. Second a worsening economy, with a credit crisis and debt maturities that make immediate cashflow more important than anything else. Third, the layoff parade starts elsewhere in the sector – at AT&T and PAETEC so far and of course outside the sector as well. And in the last but perhaps largest red flag, a new President and COO known for running lean operations joins the company, ready to apply his stamp on its business.
Yes, it was definitely coming. Even though the company has been cutting a hundred or two every quarter as 2008 has progressed, the situation has definitely changed and the company is preparing for an ugly recession. I don’t know the real numbers but if you count $100K each (including benefits, probably a conservative number), the annual savings would be $45M from SG&A. Of course, severance of $15M hitting in Q4 will cut 2008 EBITDA estimates accordingly.
But the fact that it was predictable doesn’t make the process any easier. There are still 450 people who will find out during the holidays that they will be out of work. And prior to that, there are just under 6000 people who won’t even know if they are amongst those 450 right through Christmas. This blog has many readers from Level 3, my sincere condolences to any of you affected by this rolling economic disaster. I wish I could say it’s going to be a good winter, but it’s obviously not going to happen. And it doesn’t help at all that this time it is telecom that is basically healthy and not responsible for the situation.
In other news, Level 3 updated its pending tender offer, eliminating the financing requirement and announcing that some $360M of the proceeds of the parallel financing have been placed in escrow awaiting completion. But also that the 50% minimum for both the 2.875% and 6% bonds due 2010 has not yet been met. That also was quite predictable just from the bond prices, which remain below the tender offers – clearly the market believes they won’t make it. Yet nearly all of what is tendered in such situation comes in the last week, which is precisely why LVLT is reminding us right now with one week remaining. It is almost certain of course that the tender offer will be extended, even if they do hit the 50% threshold.
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