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October 31, 2016
martinwolf Transaction Analysis
CenturyLink to Buy Level 3
Financial Information
  • Enterprise Value                     $34.7 billion
  • EV/LTM Revenue                    4.2x
  • EV/LTM EBITDA                     13.1x
Transaction Facts
  • Concluding a process first reported on Thursday, CenturyLink (NYSE: CTL) announced today that it agreed to buy Level 3 Communications (NYSE: LVLT).
  • The equity value of the deal, to be paid in cash and stock, values Level 3 at approximately $25 billion, or $69.92 per share. The transaction value also includes approximately $10 billion in long-term debt, adding to CenturyLink's current $18 billion.
  • The share price is approximately 50 percent over Level 3's closing price from Wednesday, before a potential deal was initially reported in the press. CenturyLink closed today down 12.5 percent, while Level 3 closed up 3.9 percent.
  • The transaction is expected to close by the third quarter of 2017.
Competition, Regulations Drive Consolidation
  • Snowball Effect: This transaction creates the second-largest business-focused communications provider after AT&T, bringing CenturyLink 200,000 additional route-miles of fiber and access to new customers. 
  • Products of their Environments: As competitive pressure has increased, CenturyLink and Level 3 have both made multibillion dollar transformative acquisitions, but even so the two continue to face a tight regulatory environment. New "business data services" rules proposed by the FCC in May have the potential to further reduce certain fees as much as 19 percent.
  • Meeting Tax Incentives: The acquisition of Level 3 will bring with it almost $10 billion in accumulated net operating losses, the product of a history of high infrastructure costs and low service revenues. This has been key to Level 3 reducing its own effective tax rate - a strategy that is expected to similarly benefit CenturyLink.
  • Without Merger, Falling Prospects: The two companies today also announced third-quarter earnings. CenturyLink revenue was down 3.8 percent to $4.38 billion, while Level 3's revenue was flat at $2.03 billion.
For more information about this transaction,  click here to read the press release.

martinwolf was not the advisor in this transaction.

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With offices in New York and the San Francisco Bay Area, martinwolf is a leading M&A Advisory focused on middle market companies in the IT Services, IT Supply Chain, IT-Enabled Business Process Outsourcing and Software as a Service (SaaS) space. Since 1997, our team has completed more than 140 transactions in nineteen countries and sold seven divisions of Fortune 500 companies. 


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