On Feb 5, we issued an updated research report on CenturyLink Inc. (CTL - Free Report) . The company has entered into an agreement to purchase Level 3 Communications Inc. . The combined entity will be a formidable force in the fiber-based metro-Ethernet and Internet market.
Level 3 Deal
Recently, CenturyLink inked an agreement with Level 3 Communications through which the former will acquire the latter in a cash-and-stock transaction. Total deal size is approximately $34 billion, including debt. The equity value of this deal is approximately $25 billion. CenturyLink expects the transaction to prove accretive to free cash flow in the first full year following its closure of the deal. It is also likely to prove significantly accretive on an annual run-rate basis thereafter. The combined entity is likely to generate $975 million of annual cash synergies. The deal is anticipated to close in the third quarter of 2017, subject to customary regulatory approvals.
Centurylink’s Prism TV services are doing considerably well and should be able to bring in substantial revenues. The company is committed toward expanding its Prism TV services by foraying into additional households and markets. CenturyLink also revealed plans to test the over the top (OTT) video content service in four new markets. The announcement follows CenturyLink’s increasing momentum in the Prism IPTV service platform.
However, CenturyLink’s core local phone business has declined significantly. This is primarily due to the substitution of traditional wireline telephone services by wireless carriers like Verizon Communication Inc. (VZ - Free Report) and AT&T Inc. (T - Free Report) . In addition to this, the company faces intense competition from cable TV operators who aggressively offer traditional voice, Internet TV and cloud services over their networks. Moreover, CenturyLink’s outlook for colocation revenues does not appear promising. Colocation revenues are on the decline and the company intends to avoid investing more in the segment. As of now, CenturyLink is looking to monetize these assets over the near term.
Price Performance of CenturyLink
Year to date, the Zacks categorized U.S. Wireless industry has gained 14.56%, while CenturyLink's shares lost 3.86%.
CenturyLink currently carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
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