CenturyLink Inc (NYSE:CTL) agreed to buy Level 3 Communication Inc. in a deal valued at roughly $25 billion, in order to better compete with AT&T Inc. by expanding its high-speed data services for clients.
Under the deal, CenturyLink will pay $26.50 in cash and 1.4286 of its share for each share of Level 3. This will give Level 3 a valuation of $69.92 a share, which represents a 49 percent premium to the company’s closing price of $46.92 on October 26. Shares of Level 3 rose 4.79 percent to $56.61 at 12:59 p.m. in New York, while shares of CenturyLink dropped 12.64 percent to $26.55.
Level 3 is one of the largest provider of Ethernet service. Its customers include Netflix Inc., Google and Apple. It helps run high-bandwidth internet connections for companies. While CenturyLink, which provides telephone services mainly in rural areas, operates more than 55 data centers in North America, Europe, and Asia.
"The digital economy relies on broadband connectivity, and together with Level 3 we will have one of the most robust fiber network and high-speed data services companies in the world," said CenturyLink CEO and President Glen Post in a statement. CenturyLink reported third-quarter profit of 56 cents, topping analysts’ estimates of 55 cents a share. The company expected revenue of $4.28 billion-$4.34 billion in the current quarter.
"These are two companies looking for scale and synergies in reaction to the struggles that both companies are facing in their core business to deliver on growth," BTIG analyst Walter Piecyk said in an email.