Level 3 To Buy Global Crossing for $3 Billion

By Josh Long

Level 3 Communications and Global Crossing, two of the worlds largest fiber-based providers of communications services, plan to merge in a transaction valued at $3 billion.

Level 3 on Monday announced an agreement to acquire Florham, N.J.-based Global Crossing in a tax-free, stock-for-stock transaction that would create a company with ownership over networks in more than 50 countries and connections to more than 70 countries.

Broomfield, Colo.-based Level 3 said the buy would allow the communications provider to better serve enterprises, content providers, carriers and governments throughout North America, Latin America and Europe.

Based on Level 3s closing price ($1.44) on April 8, 2011, the transaction is valued at $23.04 per Global Crossing common or preferred share, or roughly $3 billion, which includes the assumption of $1.1 billion in net debt at the end of last year, Level 3 said. The agreement calls for Global Crossing shareholders to receive 16 shares of Level 3 common stock for each share of Global Crossing common stock or preferred stock that is owned at closing.

The merger would create a communications company with pro forma combined 2010 revenues of $6.26 billion.

Level 3 also said the transaction would produce savings of roughly $2.5 billion and improve its financial position.

The combination improves our balance sheet and credit profile immediately upon closing with further improvement as we achieve the benefits of integration. Additionally, the transaction accelerates the achievement of Level 3s target leverage ratio of three to five times debt to Adjusted EBITDA,” said Sunit Patel, chief financial officer of Level 3. Including the benefit of synergies and the cost of integration, we expect the transaction to be accretive to Level 3s Free Cash Flow per share in 2013 and to give us the financial strength to capitalize on the many opportunities available in the global market.”

The companies expect the merger to close before the years end following customary closing conditions and regulatory approvals.

More than a decade ago, Global Crossing and Level 3 both raised billions of dollars to construct fiber-optic networks in North America and around the world in response to the anticipated demand for Internet-based services.  

When the telecommunications industry collapsed in 2001, both network operators struggled to survive in the face of heavy debt, cutthroat competition and a slump in demand for capacity. But the companies took different paths to survive.

Global Crossing filed for Chapter 11 bankruptcy in early 2002 and emerged the following year under a reorganization plan that allowed the company to wipe out more than $10 billion in long-term debt and convertible preferred stock.

Singapore Technologies Telemedia, which invested $250 million for a 61.5 percent equity share in Global Crossing under the reorganization plan, still remains the companys largest shareholder.  

Despite facing pressures, Level 3 managed to steer clear of a wave of bankruptcies that contributed to an estimated $2 trillion loss in market value in the telecommunications industry. But the company has continued to bleed money. Over the last two years, Level 3 has suffered combined losses of $1.24 billion.

Global Crossing has faced similar challenges, losing $313 million over the last two years.