Yesterday, Level 3 stock surged a few dollars on the backs of a bit of good old fashioned rumor and speculation. Benzinga reported to its users that Level 3 is considering strategic options that range from a stock buyback to a sale of the company. Follow-on reports quickly brought in the suggestion of an eventual buyout by Comcast, which Cowen’s Colby Syneseal speculated about at the end of last year.
Now, pretty much all companies spend time considering how to be more valuable in the eyes of the market, and now that Level 3 is making money and its debt is no longer the outsized burden it once seemed, a stock buyback definitely seems in order. But making a move to sell the company still seems rather premature. After being one of the lone survivors of the dot-com era, deep down Level 3 still believes it can win this game if it can just crack the final problem of revenue growth.
As for Comcast as a buyer, they would certainly be on any short list of candidates and probably at the top of it. In order to really crack the large enterprise market, they will likely need to make such a move someday. But they don’t appear to be in any hurry, and the speculation that such a thing is in the works also seems, well, premature. After all, it’s not as if the rumors suggest actual buyout talks. Could it happen? Sure, Comcast has the resources and everyone has their price. But I rather doubt the two companies could agree on that price at this point in time.
But the rumors themselves suggest that the market’s interest in infrastructure remains pretty strong right now, which is a good thing. The market will be taking a close look at Level 3’s second quarter results in a couple weeks for signs of any of these strategic alternatives or perhaps even some additional revenue traction.
If you haven't already, please take our Reader Survey! Just 3 questions to help us better understand who is reading Telecom Ramblings so we can serve you better!
Categories: Cable · Fiber Networks · Internet Backbones · Mergers and Acquisitions
Join Our LinkedIn Group
I have long considered Comcast the best buyer but I think things have changed. I am not sure Google is not the buyer this banker leak is trying to draw out.
MSFT made their play in enterprise on the services side of enterprise by going after linkedin to take CRM on.
Google has gotten very serious about enterprise with hiring of Dianne Greene from their board(and formerly VMWare) to go after MSFT and AMZN in the enterprise. They have made real inroads in some of those enterprise bake-offs from the case studies I have read on GCP vs. Azure vs. AWS.
MSFT has spent theirs. Comcast(who I have long thought would be the best buyer) just got their hand slapped by the justice department in TWC and are Disney-fying by buying out Dreamworks. I don’t think they are your top bid and they are now working on the spectrum auction bc wireless is a real route for them.
That leaves Amazon which as you may know passed Berkshire yesterday in market cap. I would obviously leave them as a dark horse but something tells me AMZN isn’t the buyer. You may know they bid on GLBC and they can always end up buying Zayo if Comcast does not.
Either way, this would be a great acquisition for Google, I would take their stock and I think the business press and analysts are sleeping on this possibility. I think a mid teens multiple of ebitda is fair.
Oh no, did you just revive the Google/Level 3 rumor mill? 🙂
If your Google with a $100 in cash per share I am not sure which businesses the govt would let you go after but infrastructure I think would be one.
Watching them raise enterprise price this week 2.5x(when is the last time google raise price?) and offer differing classes of services means it is something they are at least better understanding.
I think taking that scoring L3’s fiber payload and their customer base in a backdrop of getting a better seat at the table in the enterprise when they are decidely #3 is something bankers have to be pushing them on.
I feel so bad for the Field techs @ Level 3 they have so much on their shoulders they are jumping ship at all costs…as a former L3 tech I couldn’t handle metric driven mgt. (smh)
Same rumors, same reasons that have been circulating for years! I speculate simple share buy-back and meh!
MSFT could possibly buy Level 3 but why would they want to ? I think its pretty clear what MSFT is going to do … sure you could make the argument that the massive infrastructure that Level 3 has would support the Azure business as well as the xbox live business nicely but again why would they want the headaches that would come along with such a purchase?
Amazon wouldn’t know what to do with a less than shiny old toy. They would be befuddled with Level 3 b/c they have zero clue how to operate a network and they are way too arogant to do so. If Amazon tried it would be abysmal failure b/c Amazon has a “if its not managed from seattle its not worth owning” attitude which for Level 3 would destroy it.
Google isn’t going to purchase Level 3 … i predict Google purchases VMware from Dell/EMC merger. Look no further than the senior exec at Google who was a co-founder of VMware. She knows the value of VMware and what it could become in googles strategy. Its a very compelling opportunity.
That leaves Comcast. Comcast has been looking to enter the enterprise space in a major way for a long time. Its one of the reasons they tried but failed to take out TWC. Comcast has gone back and forth with its board and pitched both organic and inorganic options … obviously organic is most favorable path just given the cash required for an inorganic transaction target worth something. The reality is Comcast doesn’t have the time … so i would suspect they know that and will be doing something from an inorganic perspective. If thats the case i would / could see them taking out Level 3 … there would certainly be synergies but in the end i would suspect the enterprise and wholesale carrier teams would largely remain in tact.
Zayo – this is an interesting one. I can’t quite figure out what Dan is going to do … i suspect Dan is up to something but Level 3? i just don’t see it happening … Dan has proved me wrong in the past and he certainly is a very talented leader who if he decided to purchase Level 3 it would be a big deal in my mind. Still i just don’t see it …. prove me wrong Dan!
Dan worked at L3 and didn’t leave on good terms if i know him his having a good laugh, why would he need it he basically build Zayo into L3 without the debt!
Major hiring freeze at Level 3 right now. Very soft revenue numbers are said to be the reason. Emphasis on the “very”.
Any update/rumor on the hiring freeze?
Last quarter they hired 200 people.
Hiring freeze lasted through at least July. May still be in effect, haven’t heard.
I can’t see a Comcast acquisition of Level 3 being good for Level 3’s Enterprise ambitions. Too many enterprises know the relatively sophomoric approach Comcast takes to enterprise sales and their reputation (or lack thereof) in the customer service/post-sales arena.
I suspect this is of little concern to the street, but it should be in the front of the minds of Level 3’s board…
Comcast/NBCU has their Big Content and Big Eyeball Network bases covered. The missing puzzle pieces are high capacity interconnection and global network reach.
Sure, LVLT’s Enterprise/B2B capabilities are valuable, but will likely be an afterthought if Comcast is the buyer.
But with $10B in debt I’m not sure Comcast takes on the baggage if they can continue to solve those problems on the backs of others.
An afterthought? That would be the leading reason for taking on the debt, with the high-cap xconn and global reach taking second place. I can’t see them making significant inroads in breaking into the Big Content and Big Eyeballs network in the EU and APAC. They have no appetite for negotiating access to those markets on the terms of the regulatory bodies in those areas – especially Europe – given they their propencity towards American style lobbying and quasi-bribery-based access to monopolistic MSO agreements. If they think they can adjust quickly, just look at their false starts in US direct Enterprise sales over the last 4-5 years.
Can anyone really see Comcast wanting to deal with cross connect costs in Africa, or peering in New Zealand? I don’t see Comcast buying a large International player as there is way too much they would have to divest that isn’t related at ALL to any of their existing business.
Reverse Merger About to Happen. Breauninger/Orlando/Pang/Flannery about to take over.
Dumba$$ Flannery hasn’t been at Level 3 for years.
We have to assume this is the same person who, every time Level 3 is mentioned here, praises the ground Gary walks on. Its so creepy that its either him after a long night of drinking, or his mom.
Well someone was given a tour of lab and other facilities yesterday, that was very high level and very hush hush.
Has this thread been commented on by anyone else that didn’t have an ax to grind or stand to gain something from whatever rumor they’re bantering?
Well, now it has…
Looks like Centurylink got L3 rather than Comcast. Any thoughts on that?