Level 3 Communications announced a $3 billion merger Monday that will nearly double the size of the Broomfield-based Internet-network operator at a time when demand for broadband capacity is surging.
Level 3 will acquire industry peer Global Crossing for $1.9 billion in stock and $1.1 billion in assumed debt. The combined company’s fiber-optic-communications network will reach more than 70 countries, transporting Internet data for a wide range of businesses, including Google and Netflix.
The deal comes amid a boom in demand for bandwidth, or Internet capacity, as consumers increasingly surf the Web on their cellphones and watch online movies and TV shows on their computers and TV sets.
“It’s pretty obvious that bandwidth is a basic necessity,” Level 3 chief executive Jim Crowe said. “Food, water, air and bandwidth, both to your wired connection in your home and, increasingly at a pace that’s breathtaking, to your handset. That’s a development of the last three years or so.”
After spending billions of dollars to build its network, Level 3 has struggled to post profits under the weight of a massive debt load. At the end of 2010, the company had $6.4 billion in debt and roughly $600 million in cash and equivalents.
The merger will allow Level 3 to trim operating costs, reach new international markets such as Latin America and, in the long term, hold more control over bandwidth pricing, said Donna Jaegers, an analyst with D.A. Davidson & Co.
Level 3 expects to save $300 million in annual operating costs after the integration. Combined, the companies employ 10,700 worldwide, including 2,200 in Colorado, and generate roughly $6.3 billion in annual revenue.
Crowe said sales positions will be added, though job cuts are expected.
“There will be some overlap in staff positions and some other back-office stuff that clearly (will lead to) some reductions, but it’s not as if we bought another U.S. company where everything is duplicated,” he said.
The combined company will be based in Broomfield, though the surviving corporate name hasn’t been chosen.
“We’ll do a study, an assessment, of the brand equity of both companies,” Crowe said. “It’s not just a U.S. question. It’s a global question. An international question.”
Level 3 has a larger network presence in North America, while Florham Park, N.J.-based Global Crossing has more extensive operations in parts of Europe and Latin America.
Colby Synesael, an analyst with Cowen & Co., said some cost savings could come from Level 3 providing “a significant amount of the same services to Global Crossing’s customers without having to use Global Crossing’s network.”
The deal values Global Crossing stock at $23.04, a 56 percent premium over Friday’s close. Global Crossing stockholders will receive 16 Level 3 shares for each Global Crossing share they own.
Level 3 said a subsidiary has secured $1.75 billion in financing in connection with the deal, which requires regulatory approval and is expected to close by year-end.
Investors welcomed the proposed acquisition, sending Level 3 shares up 26 cents, or 18 percent, to close Monday at $1.70.
It is the Denver area’s second multibillion-dollar telecom merger announced over the past year, following Century Link’s recently closed acquisition of Denver-based Qwest.
In 1999, Global Crossing nearly acquired U S West but lost out to rival Qwest. After the tech bubble burst, Global Crossing filed for Chapter 11 bankruptcy in 2002.
Andy Vuong: 303-954-1209, avuong@denverpost.com or
Level 3 Communications
Headquarters: Broomfield
Chief executive: Jim Crowe
Employees: 5,500; 2,080 in Colorado
Countries served: 23
Markets served: 190
2010 consolidated revenue: $3.65 billion
Market capitalization: $2.7 billion
Global Crossing
Headquarters: Florham Park, N.J.
Chief executive: John Legere
Employees: 5,250; 125 in Denver area
Countries served: 70
Markets served: 700
2010 consolidated revenue: $2.61 billion
Market capitalization: $1.4 billion
Sources: Companies, Denver Post research
History of Level 3 Communications
1985: Level 3 is founded as Kiewit Diversified Group, a wholly owned subsidiary of Peter Kiewit Sons, Inc.
1998: Kiewit changes name to Level 3 Communications with emphasis on communications and information services business. In April Level 3 stock starts trading on NASDAQ.
1999: Grand opening of the $150 million headquarters at Interlocken in Broomfield, Co.
2003: Level 3 acquires Genuity, an almost bankrupt data-network operator.
2005: Level 3 acquires WilTel Communications Group, LLC.
2006: Level 3 acquires Progress Telecom, ICG, TelCove and Looking Glass Networks.
2007: Level 3 acquires Broadwing Corp. and the Content Delivery Network services unit of SAVVIS Inc,. and Servecast, an Irish internet broadcasting company.
2008: Level 3 co-founder Kevin O’Hara resigns as president and COO.
2009: Level 3 has its first quarterly profit since 2003.
2010: Level 3 announces a $550 million buy back in 12.25 percent notes due in 2013, opening the way for more acquisitions.
Sources: Nexis and Hoover’s
Compiled by Jan Torpy, The Denver Post Library
History of Global Crossing
1997: Gary Winnick, founder of Pacific Capital, and retired ARCO CEO Lodwrick Cook form Global Crossing. They plan a network of independently owned undersea fiber-optic cables to link major cities around the world.
1997: AT&T agrees to lay cable for Global’s Atlantic Crossing segment, if Winnick provides $750 million. Winnick lures investors and invests $15 million.
1998: Atlantic Crossing begins commercial service and goes public.
1999: Robert Annunziata leaves AT&T and becomes CEO of Global Crossing. Company acquires Frontier Communications. Global Crossing plans to merge with U.S. West, but rival Qwest gets it through a hostile bid.
2000: Global Crossing acquires IPC Communications and its IXnet subsidiary. Company goes through three CEOs.
2001: Demand for services slow and Global Crossing begins cutting jobs and selling assets.
2002: Global Crossing seeks reorganization under Chapter 11 bankruptcy protection. Winnick resigns after an investigation into his stock sales. He reimburses $25 million to employees who own company stock. The company is $12.4 billion in debt.
2003: Global Crossing emerges from bankruptcy with a new parent company, Singapore Technologies Telemedia Pte. U.S. Operating headquarters move to New Jersey.
2004: Temasek Holdings acquires Singapore Technologies, including its subsidiary Singapore Technologies Telemedia, and takes control of Global Crossing.
2006: The company expands its Voice over Internet Protocol (VoIP) service in Europe, and also acquires UK-based Fibernet Group and Argentina-based IMPSAT Fiber Networks.
2010: Global Crossing acquires video transmission specialist Genesis Networks. The company also expands its undersea fiber-optic systems in Mexico, Central America, and South America.
Sources: Nexis and Hoover’s
Compiled by Barbara Hudson, The Denver Post Library
