CenturyLink to Buy Service Provider Level 3 for $34 Billion

The deal for Level 3 will enable the telecommunications company to better compete with rivals such as AT&T and Verizon in fiber and broadband.

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CenturyLink is buying Level 3 Communications for $34 billion, a move that officials with both companies said will create a significantly larger player in the global telecommunications space.

Bringing Level 3 into the fold will enable CenturyLink to expand its fiber optics and data services capabilities to enterprises and extend its reach with small businesses and consumers. CenturyLink reportedly makes close to 60 percent of revenue selling network services to enterprises, a percentage that will increase to 76 percent after the deal closes.

With the acquisition of the service provider, CenturyLink will be better positioned to compete with telco giants like AT&T and Verizon in a rapidly changing space in which businesses are demanding more network speed and capacity as they struggle to manage, store and analyze the massive amount of data that is being generated in this age of the cloud, increased mobility and the internet of things (IoT).

The deal comes days after the reports surfaced saying the two companies were in talks. CenturyLink will pay $66.50 per share of Level 3 stock.

"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," CenturyLink President and CEO Glen Post said in a statement. "This transaction furthers our commitment to providing our customers with the network to improve their lives and strengthen their businesses."

The focus is delivering fiber connectivity to businesses and consumers, said Post, who will be CEO of the merged company after the closing, which is expected at the end of the third quarter next year.

The deal will add 200,000 route miles of fiber to CenturyLink's network, including 64,000 miles in 350 metropolitan areas and 33,000 subsea miles that connect multiple continents. In addition, the telco's on-net buildings will grow by almost 75 percent, to about 75,000, including 10,000 buildings in the Europe, Middle East and Africa (EMEA) and Latin America regions.

The combined company will have about $19 billion in business revenue and $13 billion in strategic revenue, and will be more financially strong and efficient, given the complementary nature of the deal, officials said. The new company's increased scale will generate about $975 million of annual run-rate synergies as officials will be able to eliminate duplicate functions, consolidate systems and increase operational and capital efficiencies. Along with the 76 percent of revenue coming from business customers, 65 percent will come from strategic services. In addition, CenturyLink will be able to invest more in its broadband infrastructure, boosting speed for small businesses and consumers.

"This is a compelling transaction for our customers, shareholders and employees," Level 3 President and CEO Jeff Storey said in a statement. "In addition to the substantial value delivered to shareholders, the combined company will be uniquely positioned to meet the evolving and global needs of enterprise customers."

Both companies over the past several years have bought other vendors in hopes of building out their capabilities. CenturyLink in 2011 bought service providers Savvis and Qwest Communications International. The company also has bought such companies as AppFog and Tier 3, and earlier this year, it acquired cloud application management service ElasticBox. Level 3 two years ago bought TW Telecom to grow its enterprise communications portfolio, and in the past had acquired other companies, including Global Crossing, WilTel Communications, Looking Glass Networks and ICG Communications.

The same day they announced the Level 3 acquisition, CenturyLink officials also unveiled financial numbers from the third quarter, with revenue coming in at $4.38 billion, a drop from the $4.55 billion during the same period last year. Operating income came in at $595 million, a year-over-year decline from $656 million.