Although the two companies are similar in size, the Monroe, Louisiana-based CenturyLink is the buyer in the transaction, which was rumored late last week.
CenturyLink is motivated to own Level 3’s extensive global fiber footprint and to expand its roster of enterprise customers. CenturyLink already owns some 250,000 route miles of fiber, according to CNBC. The merger with Level 3 will give it an additional 200,000 route miles of fiber, including fiber in 350 metropolitan areas and subsea route miles connecting multiple continents.
Level 3 offers its broadband services exclusively to business customers. Conversely, CenturyLink’s roots are in rural phone services to consumers. But its landline phone business has been drying up. In response, the company has been shifting its focus to its enterprise and small and midsized business customers.
The additional fiber from Level 3 will make CenturyLink more competitive against its phone company rivals Verizon and AT&T. Verizon has about 800,000 route miles of fiber, and AT&T boasts about 1 million route miles.
With the Level 3 acquisition, CenturyLink also increases its on-net buildings by nearly 75 percent to about 75,000, including 10,000 buildings in EMEA and Latin America.
Together, the combined company’s revenues will be 76 percent derived from business customers.
The SDN Angle
Both CenturyLink and Level 3 have been racing to use software-defined networking (SDN) and other virtualization techniques to offer more services to their business customers. With their combined fiber network footprint, we could see more SDN and network functions virtualization (NFV) innovation from the merged company.
If the deal goes through, CenturyLink shareholders will own about 51 percent of the combined company, while Level 3 shareholders will own about 49 percent.
Shares of Level 3 rose about 4 percent to $56.32 this morning, while shares of CenturyLink dropped 10.8 percent to $27.09.
After the close of the transaction, CenturyLink CEO Glen Post would lead the company, and Level 3 CFO Sunit Patel would serve as chief financial officer.
The parties expect to close the transaction by the end of the third quarter of 2017. The combined company will be headquartered in Monroe, Louisiana, with a significant presence in Denver.