Shares in fiber and Ethernet network operators Level 3 and Global Crossing surged yesterday on news Level 3 will acquire its rival in an all-stock deal worth $3 billion (€2 billion).
Level 3 climbed 18% during business hours and a further 2.9% in after hours trading to $1.70, while Global Crossing soared nearly 70% to $24.97 on news of the deal, which sees Level 3 pay $1.9 billion worth of stock to Global Crossing shareholders, and assume $1.1 billion in debt.
In return, the firm will create an operator with fiber and other networks in around 50 countries in North America, Latin America and Europe, and subsea cable network connections to more than 70. Combined revenues for the firm would have hit $6.2 billion in 2010.
Level 3 chief Jim Crowe said Global Crossing was an attractive target due to the “complementary fit between the two company’s networks, service portfolios and customers.” He added the “transformational” deal will create a “global platform that is well positioned to meet the local and international needs of our customers.”
Singapore based ST Telemedia, currently the majority shareholder in Global Crossing with a 60% stake, will become the largest stake holder in the combined entity. Lee Theng Kiat, president and chief executive of ST Telemedia, expects the pairing to create a firm that is well positioned to “expand in the US and compete globally.”
The companies expect the merger to reduce capital expenditure by around $40 million per year, once regulatory approvals are granted. However, it is relying on those cost savings to boost the books, with both firms running at a loss in 2010.
Level 3 expects to realize over 60% of predicted EBITDA synergies of $300 million within 18 months of closing the acquisition.