Level 3 to buy Global Crossing, consolidating IP long-haul, content opportunities

Looking for greater scale to compete with larger global rivals, Level 3 Communications today said it has agreed to acquire Global Crossing in a $3 billion stock swap. The combined companies will run fiber optic networks on three continents and serve customers in more than 50 countries with a range of wholesale, CDN, data center/cloud and voice, video and data services for large government and enterprise users.

In a conference call this morning, executives from both companies stressed the financial aspects of the combination. Both Level 3 and Global Crossing have been challenged competing with larger global IP rivals like AT&T or BT. Together, the two companies will have combined 2010 revenues of $6.26 billion and more extensive network holdings and global sales force needed to chase growing opportunities carrying IP traffic worldwide. The companies stressed growth opportunities in Latin America and Asia in particular.
“The opportunity for the combined companies to improve revenue growth over time is certainly very strong,” said Sunit Patel, chief financial officer of Level 3, on the conference call.

A merger of relative equals such as this typically aims to capture value through consolidated operations, and the Level 3/Global Crossing tie up with no doubt make for many nervous months for employees from both companies as those decisions are made, admitted Level 3 CEO Jim Crowe in that same call.

“You have two companies, roughly the same size and employee base, [both of which have] worked through the tech bubble collapse, the financial services collapse and difficult times…with strengths and capabilities. Our over-riding goal, and we’re serious about this, is to fill every position with the best possible [person],” he said, stressing that on the sales side the combined company would not only aim to keep current staff in place but grow it to pursue the many opportunities ahead of it.

The two companies certainly made it through the down times, but they were also both high-flyers during the fiber/dotcom boom days as well.

Service provider deals typically come in several flavors highlighted by market share grabs, such as the recent AT&T-T-Mobile pairing, and financial constructs that focus on cost savings and network/back-office efficiencies, which is certainly the case with Level 3/Global Crossing. While the pair highlighted new revenue opportunities – and certain areas like over-the-top CDN delivery are certainly exploding – both companies also have had long-standing challenges with stock prices, balance sheets and credit issues. Level 3’s stock closed Friday at $1.44 (with an annual trading range of $0.83 to $1.77) and a market cap of $2.4 billion, but it also has more than $6 billion in long-term debt to deal with.

The deal values Global Crossing at $23.04 a share — about 56 percent above the telecommunication company’s closing price on Friday.

According to Forbes.com, as of Monday morning Level3's stock was up 39 cents, or 27.1% to $1.83, while Global Crossing was up $11.65, or 78,7%, to $26.45.