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CenturyLink, Level 3 Communications Deal Gets DOJ Approval

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The much-hyped merger between CenturyLink Inc (CTL - Free Report) and Level 3 Communications Inc received regulatory approval from the U.S. Department of Justice (DOJ), subject to certain outlined conditions, including court approval of certain provisions.

However, the pending merger still awaits regulatory approval from the U.S. telecom regulator, Federal Communications Commission (FCC) and the California Public Utilities Commission, along with other customary closing conditions.

The deal is anticipated to be closed in the third quarter of 2017, subject to customary regulatory approvals. CenturyLink currently carries a Zacks Rank #5 (Strong Sell).

Level 3 Communications is a Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Approval-Granting Conditions

As per the statutory decisions, the combined entity plans to divest certain Level 3 Communications’ metro network assets and certain dark fiber assets. These divestitures will not affect the pro-forma operating revenue and operating cash flows of the combined company. Notably, Level 3 Communications is one of the largest Internet provider in the world and the leading U.S. fiber-optic network service provider.

The combined company is required to divest Level 3 Communications’ metro network assets in three metro areas which include Albuquerque, NM; Boise, ID and Tucson, AZ. The combined company will continue to serve all current Level 3 Communications’ customers unless they choose to be served by the buyer of divested assets in each metro area.

CenturyLink retains all of its existing networks and business operations in these three metro areas. The company will continue to provide a full suite of telecommunications and data services to residential and business customers.

The clause also states that the combined company will divest 24 strands of dark fiber, which will connect 30 specified city-pairs across the country. Presently, the fibers are not being used for any commercial purpose. Hence, this divestiture will not affect any current customers or services.  

The Pending Deal

The proposed merger, which was announced in November 2016, has already received approvals from almost 24 states and territories. The combined company will offer customers a broader and more complementary range of services and solutions, and enable the advanced technology and growing bandwidth needs of its business, government and consumer customers.

The completion of the proposed merger will increase CenturyLink's network by 200,000 route miles of fiber including 64,000 route miles in 350 metropolitan areas and 33,000 subsea route miles connecting multiple continents. CenturyLink's on-net buildings are expected to increase nearly 75% to approximately 75,000. This includes 10,000 buildings in Europe, the Middle East and Africa and Latin America. Therefore, the merged entity will become a formidable challenger to their peers.

Meanwhile, CenturyLink and Level 3 Communications are also struggling to maintain their business momentum owing to severe competitive threats from large telecom operators like Verizon Communications Inc (VZ - Free Report) , AT&T Inc (T - Free Report) and Comcast Corp (CMCSA - Free Report) .

The total deal size is approximately $34 billion including debt. The equity value of this deal is approximately $25 billion. The combined entity is likely to generate $975 million of annual cash synergies. The new company will be a formidable force in the fiber-based metro-Ethernet and Internet market. 

Price Performance

In the past month, shares of CenturyLink have declined 3.4% as against the industry’s increase of 2.1%.


Meanwhile, shares of Level 3 Communications have lost 1.7% compared with the industry’s decline of 2.3%.



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