Level 3, Global Crossing Finally Get Hitched

April 11th, 2011 by · 15 Comments

Rumors had been swirling for several days, but now it is official.   Level 3 Communications (NYSE:LVLT, news, filings) is buying glbc for roughly $3.0B!  It’s a stock deal, with Global Crossing shareholders receiving 16 LVLT shares for every GLBC share they hold, which works out to $23.04 per share at the moment – a nice premium.  That means Singapore Technologies and Telemedia will be joining Level 3’s other major investors rather than cashing out.  Level 3 will also assume $1.1B in debt.  Over the past three years, I have speculated at length about the merger of these two networks.  It has always made a tremendous amount of sense strategically for them to combine.  Why?  Where Level 3 and Global Crossing overlap (the USA and Europe for wholesale) they would have tremendous synergies in the hundreds of millions of dollars annually.  Where they do not (large enterprise, UK, and South America), their assets and product lines are highly complementary.  Following the deal, Level 3 will have intercity, metro, and datacenter depth on three continents.

Both companies have underlying strategic needs that this deal fills.  Level 3 needs greater scale to bear the load of its debt while maintaining a growth footing.  Global Crossing needs US and continental European metro access to boost its margins, and for two years now has been quite open about the benefits of consolidation.  That these two eventually managed to agree on a price is not nearly as surprising as how long it has taken.  I think it would have happened years ago, but for the time it took to clean up Level 3’s previous integration disaster and the subsequent freezing of the credit markets.

Pro forma, Level 3 and Global Crossing had $6.26B in revenues and $1.27B in EBITDA for 2011. Level 3 forecasts synergies to come in at $300M in annualized costs plus $40M in reduced capex needs.  Of the cost savings, 39%  are expected to come from the netex side, and 49% will be from opex, with the remaining 12% from capex.  It will take a while to put those savings together though.  I’m sure we will hear much more about the integration plans, timing, and expectations on the call this morning.

As obvious as the combination has been from a high level strategic viewpoint, the fact that plenty of those synergies to be derived will come out of the hides of real people.  Real people who read Telecom Ramblings in many cases.  So while it could help bring longer term stability to a substantial segment of the competitive fiber, IP, and data sectors, it will probably bring instability to some readers’ families a few quarters from now.  But given the growing health of the sector overall and the promise of steady and strong demand from the video revolution, hopefully there will be opportunities available when the time comes.  In the long run, this deal stands to bring stability to the sector as the combined company will be on much more solid footing.

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Categories: Internet Backbones · Mergers and Acquisitions

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15 Comments So Far

  • DJ says:

    he shall be excited
    40 mill?

  • Anonymous says:

    does this make XO the prized asset left in USA LH/metro fiber. Cral Icahn is crook but he going to be a wealthier crook very soon

    • Rob Powell says:

      But he says he won’t sell to a third party? I think this does reduce the field of potential buyers for XO, but it doesn’t by any means deplete it. Zayo, PAETEC, TW Telecom, Earthlink, and Windstream could all be serious contenders should they be put on the block.

  • Well TW Telecom and XO might be the only ones worth buying out of that list =)

  • Homer says:

    This was a transaction long overdue for LVLT… a mostly equity acquisition that significantly delevers its balance sheet. I am still surprised XO didn’t jump ahead of GLBC (that combination would have delevered LVLT substantially more)… particularly last year when LVLT was hurting trying to rise capital.

  • Anon says:

    this deal makes good strategic sense.. big(gest?) IP network in the world just got tenacles into every continent… financially, it delevers post-merger L3, but they still have work to do…

    not sure it has anything to do with xo — LH provider comprised of a duct/strands on L3’s existing network and CLEC allegiance assets. expect a CLEC to go there, if anyone ever does anything…

  • mhammett says:

    How much impact do you think this would have on the Level 3 – Comcast situation?

    If Global Crossing – Comcast is anywhere near balanced, it should help out Level 3’s ratio. However, is the problem more about the ratio or the traffic levels?

  • Anonymous says:

    Rob, any thoughts on the likelihood of another bidder? Why wouldn’t VZ pull an MCI?

  • fivebysignal says:

    This is big news for it melds Level 3 and Global Crossing into a large global fiber presence. With the proliferation of wireless devices their global fiber networks shall connect millions of subscribers around the world. The money that this combination of Level 3 and Global Crossing shall make is going to be billions of dollars. Smart move however not entirely unexpected. This puts a lot of pressure on at&t, Verizon, BT, Deutsche Telekom, NTT and others. It also makes the Vodafone/Verizon hookup more imminent as they shall have to get together to compete against this merger.

  • anonymous says:

    The combined Level 3 and Global Crossing form a strong competitor even to T and VZ.

    The smaller competitors/peers: TWTC, PAET, CCOI, … will rush to find their own acquisition targets just to survive.

  • Anon says:

    don’t get too carried away… both L3 and GC need capital and enterprise customers… tying them together doesnt mean they gain capital or enterprise customers. i do like the deal, though. no way to see the new combined map and not get it.

  • Logo says:

    things for global crossing would likely have turned out very differently had their attempted buyout of USWEST been consummated rather than being aborted by joe nacchio and qwest.

  • Anon says:

    And GC’s global capability into places like Asia, Africa and the Middle East is very limited indeed. L3 is not helped in these regions. Where they were already strong, they get stronger. No change in where they were weak already, except LatAm.

  • Anon says:

    On theconsolidated map, all the routes in Pacific, Asia, Indian Ocean and middle east are leased bandwidth. not owned fibre.

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