Analyst Recommends LVLT Shopping Spree

February 21st, 2010 by · 8 Comments

On Friday, there were reports that Oppenheimer’s Timothy Horan issued a research note suggesting that Level 3 Communications (NYSE:LVLT, news, filings) return to its acquisitive ways.  Hmmm, given that I have beaten this drum more than once over the past year or two – I can’t really let that pass without commenting, right?  Horan picks glbc as the top target, followed by XO Holdings (news, filings), and then on to Sprint wireline and Qwest longhaul.  Very familiar targets obviously, they’re always on the list and from a relative likelihood perspective I don’t disagree.  Each is likely available at the right price, though nobody’s quite sure what Icahn’s price really is at XO.  

On the other hand, while the credit markets have thawed since last year’s financial ice age, they remain very chilly compared to those that fueled the telecom M&A markets of 2005-2007.  I know that Level 3 would like to follow such a path if the timing is right, but for any of these three targets they would need quite a bit of help.  Also, after Level 3’s prior integration challenges and last year’s tight capex budget, there actually remains a fair amount of work left integrating and tuning their current pile of assets.

So let’s throw this open to the peanut gallery:

[poll id=”34″]

For now I’ve limited the choices to these four large backbone operators rather than add in everyone in the sector.  To mention some other possibilities:

  • Metro fiber – other than XO I this sector is not so underpriced anymore, and therefore it seems an unlikely place for Level 3 to make a move
  • CDN – no targets spring to mind that would change things much.
  • A CLEC- Revenue heavy targets with little fiber don’t seem likely to me at this time, the synergies are there but would be difficult to extract.
  • Europe – Hmmm, there are some real possibilities across the pond…  Any thoughts?

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Categories: Internet Backbones · Mergers and Acquisitions

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8 Comments So Far

  • fluids_only says:

    Europe? Colt springs to mind. It would seem to me to be a good fit for Level 3’s Europe operations.

    Having said that, it’s not a game-changer for them and so would be a highly unlikely A-list target; also, Global Crossing comes with some reasonable European assets so an acquisition there would boost their European operations.

    Having said that, I think it’s neck and neck between GBLX and Qwest. For me it comes down to how low Qwest is prepared to go right now. It could be that right now Level 3 is playing these companies off against each other from the advantageous position of being the likely prime acquirer of either.

    The analysts are probably getting vocal now because they suspect that the premium being placed on the bond repurchase signals impending acquisition activity. Could be right, could also be Level 3 playing the game as per the above. Either way I’m expecting to see some action before 1H10 is over.

    • Rob Powell says:

      Yes, Colt sprang to mind for me also, but you’re right that it doesn’t change the game even if it would be a major deal.

      Seems like there is a groundswell of agreement that it has been too quiet in Broomfield for too long, and therefore a deal is inevitable. But that doesn’t in itself suffice to actually make it happen. Despite being a long term speculator on M&A I’m not entirely sure we will see anything so quickly.

      Of course, LVLT could always surprise us all and buy Reliance Globalcom! Haha, just kidding… 🙂

      • DP says:

        Could this have anything to do with the recent upsurge in XO stock? Is Ichan ready to up the ante? Regardless of your thoughts on Ichan, he is great for ratings..

        • Rob Powell says:

          Could be, the stock is illiquid enough that it doesn’t take much to move it. As for whether Icahn is ready… who knows. Something’s going to happen at XO soon, I’m just not sure what it will be.

  • carlk says:

    Goldman’s Limelight was finding nice bids on extra heavy volume today.

  • carlk says:

    That’s an awful lot of speculation for what’s not coming until AFTER MARKET today. Maybe someone got their CUE wrong ahead of the bell yesterday! 🙂

    In the meantime, (3) picked up an executive to develop connections in Eurasia, The Middle East, and Africa this morning.

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