Level 3 Communications Inc. said Thursday it agreed to buy Progress Telecom LLC for $137 million in stock and cash to expand its business in the Southeast.
Level 3, a Broomfield-based communications and information-services company, said the deal consists of $68.5 million in unregistered shares and $68.5 million in cash. It is expected to close in the second quarter. Progress was an attractive buy because it has positive free cash flow and communication infrastructure connections to Latin America, said Sunit Patel, Level 3’s chief financial officer.
“The business fits us pretty well,” Patel said. “We are a logical consolidator, and our earnings show that.”
Progress, a regional Internet and voice-network provider based in St. Petersburg, Fla., is owned jointly by Progress Energy Inc. and Odyssey Telecorp Inc. Progress’ network spans 9,000 miles and includes 29 metro networks, serving about 200 customers. It focuses on international and wireless carrier customers.
The two companies are to start integrating their networks in 2007. Progress Telecom customers will be able to use Level 3’s products, including its Internet phone-calling capability, known as Voice over Internet Protocol, or VoIP.
Donna Jaegers, an analyst with Denver’s Janco Partners, said the buy was a good one but the price was too high.
“They’re justifying it by saying they can cut $30 (million) to $35 million in costs. They only have $70 million in sales, so they’re talking about cutting half of their costs out? I don’t know,” she said.
Shares of Level 3 rose 14 cents, or 4 percent, to close at $3.64 Thursday on the Nasdaq market.
Denver Post staff writer Beth Potter contributed to this report.
