10 ms·
CenturyLink to Buy Level 3 for $34B
- jessedhillon 10y agoThe acquisition values Level 3 at $66.50 a share, the companies said in a statement Monday. That’s about 42 percent above where the Broomfield, Colorado-based company was trading last week, before reports surfaced of a potential acquisition by CenturyLink... What explains this? I could understand a small jump in value, but what can be the basis for a $14B gain in a company's value when the only facts that have changed are that a buyer exists? Does the market "believe" that the company's future 42% brighter under the prospect of a buyout, and that belief is captured in the price now?
- JustSomeNobody 10y agoI've often wondered this as well. Would love an eli5...
- jacques_chester 10y agoMy understanding, which should not be relied on, is that the market is composed of traders expecting other traders to bid it up in anticipation of CenturyLink bidding it up, so they're bidding it up.
- pandemicsyn 10y agoOr that another suitor will step in and cause an intense bidding war ala Isilon/Data Domain/etc.
- biehl 10y agoThe difference in value should be the "synergies" that combining the companies will yield.
- lbradstreet 10y agoEspecially this financial magic "The deal also promises to help CenturyLink by giving it access to about $10 billion in tax credits that Level 3 is carrying on its books"
- dsacco 10y agoThe most straightforward reason why the stock price jumps is because the acquirer generally makes a bid at a premium to the potential acquiree's stock value in order for the deal to make sense. Market participants know this, especially professional traders, so when the news comes out the fastest players will hop on the stock to make a quick profit. Those who get in on it the fastest when the news breaks enjoy an increase of several percent (or sometimes significantly higher, such as in Linkedin's case!). The long term reasons and implications are more complex, but from a short term game theoretic perspective if you can quickly act on the knowledge of an acquisition, you can make quite a bit of money. Most people don't have the savvy or infrastructure in place to do this, but if you're drinking coffee in the morning and you see this pop up on your Bloomberg terminal, you'll want to buy within seconds/minutes if you believe the stock is going to jump. You can go so far as to automate the process and place orders for the stock as soon as an algorithm recognizes an acquisition announcement. There is also the phenomenon where you can reasonably assume that M&A announcements were leaked in hindsight by looking at the option trading history for the stock. Very often you see that in the week or days prior to an announcement, extraordinarily lucky "bets" are placed in the form of call options, indicating that someone knew and acted on the information. Matt Levine has a great Bloomsberg column article on this with several examples.
- icebraining 10y agoThe 42% increase was CenturyLink's offer over last week's stock price. The actual stock price is only at $54 (15% above last week). Why would CenturyLink offer such a large premium? Beats me, I'm not an expert.
- JumpCrisscross 10y agoTwo things: 1. CONTROL PREMIUM. Buyers pay more to control a company [1]. Control means you can directly effect changes through management. (The flip side is the minority discount.) There is also the technical aspect of, when buying 100% of a company, needing to make an offer 70% or 90% or whatever (depending on the target's bylaws) of the company's stock will accept. The most willing sellers are reflected in the bid-ask. Less-willing sellers will need more to move. Since you make one bid to everyone, a premium emerges as the price the last least-willing seller you need will accept. 2. SYNERGIES. If you have a billing department and they have a billing department, you can probably do fine with just one billing department. The more similar the acquirer and target, the more of these cost savings and joint growth potentials (e.g. targeted ads over TV) emerge. [1] https://en.m.wikipedia.org/wiki/Control_premium https://en.m.wikipedia.org/wiki/Control_premium
- hueving 10y agoKeep in mind that the offer has to be good enough to get the majority of stock holders to sell. The long term holders of the stock obviously believe the company will be worth more than its current trading value (otherwise they would have sold). So a buyer has to pick a value that convinces enough of these shareholders to cash out. Imagine that you owned a condo in a building and each owner got to vote on whether to sell the whole building. If a buyer wanted to buy the whole building, they are going to have to make an offer with an amount per condo higher than any of the current listings to capture a majority of the condo owners' interest that weren't previously interested in selling.
- bboreham 10y agoConsider "where xyz was trading last week". This is the price at which deals got done - at which both the buyer and seller thought they were getting a "good enough" deal. On that day, there are many people holding the stock who do not sell, because they believe the correct price should be higher. And there are many people who might buy, but do not because they think the price is too high. For an acquisition you have to pay the price where most of the holders _will_ sell. This price is naturally higher than the price where some holders _did_ sell, on a given day.
- wlievens 10y agoThe ARM acquisition had a similar premium of around 40%. If you picture buying all those shares one trade at a time though you can easily imaginr the price pressure pushing it 20 or 30 pct higher. The rest is synergy or whatever you want to call it.
- okket 10y agoIP transit seems to be a declining business as content moves towards customers. See "The death of transit?": https://blog.apnic.net/2016/10/28/the-death-of-transit/ https://blog.apnic.net/2016/10/28/the-death-of-transit/
- betaby 10y agoNot really, because mobile data roaming is growing, and in most cases it doesn't use local breakout. VoIP is growing in the volume (but almost not growing in $). That data has to be moved over backbones. Messengers are growing - again backbone traffic. In fact Tier-1 traffic grows. Revenues - not so much, price per megabit is in constant fall.
- foepys 10y agoHow can a company that is valued at $16.6 billion with $19 billion in debt buy a company that is valued at $19.4 billion with $11 billion in debt for $34 billion? From where is the money for such acquisitions coming?
- op00to 10y agoMore debt?
- pjmorris 10y agoThe real secret to making money seems to be making more money (debt).
- deleted 10y ago[deleted]
- treehau5 10y agoI am starting to think fractional reserve banking was a bad idea
- pjmorris 10y agoIf only it were that simple. Turns out that, rather than being constrained by the deposits/assets they have on hand (FRB doctrine), banks will create the loans they believe they can make, then go settle up with the central bank/regulators. See, for example, (unorthodox) economist Steve Keen [0][1] on this. [0] http://www.forbes.com/sites/stevekeen/2015/02/28/what-is-money-and-how-is-it-created/#24561cde56a3 http://www.forbes.com/sites/stevekeen/2015/02/28/what-is-mon... [1] https://en.wikipedia.org/wiki/Steve_Keen https://en.wikipedia.org/wiki/Steve_Keen
- lsd5you 10y agoYeah, that was my greatest take away from what I've read from him. Talk about the tail wagging the dog. The restrictions in this light almost do more harm than good since it exonerates the banks (or rather the system) and every time we have a crisis (after people have been making the big bucks for years) we treat it as mysterious and unrelated to the profits made in the 'good' times.
- kyledrake 10y agoIP transit is probably cheaper if you own the IP transit company. Conceptually this makes sense. Has that Rockefeller vertical integration feel to it. Take this with a grain of salt, but from what I've gathered doing IP transit related work, Level3 has something of a reputation of being higher quality transit than many of their competitors. They tend to cost more and people seem to be paying it.
- icebraining 10y agoHas that Rockefeller vertical integration feel to it. Yeah, with the acquisitions they've been making, you can use your home CenturyLink connection, which goes over the CenturyLink backbone cabling, over to CenturyLink's IaaS provider, which hosts an app deployed using CenturyLink's PaaS.
- exelius 10y agoCTL is much stronger in the commercial space than they are in residential. Vertical integration is the name of the game in the commercial telecom space, and has been for 30+ years. And really, think of CTL as a decades-long rollup of baby Bells in the north central / midwestern US and they make more sense -- just like AT&T is largely a rollup of the southern and western Bells and Verizon is largely a rollup of east coast Bells. AT&T and Verizon were able to prevent Comcast from becoming a third national competitor (for now), but it looks like CenturyLink will just take their place. Look for them to get into cellular in more than an overbuilding capacity soon though. I will almost guarantee that Sprint ends up with Comcast and T-Mobile with CenturyLink -- though I also wouldn't be surprised if the opposite happens. Our goal as people who use telecom services should be to get as much diversity in telecom as possible. Right now, it's a two-horse race: AT&T / Verizon and Comcast / Charter / Cox. If, in 10 years, we have a choice between AT&T, Verizon, Comcast and CenturyLink... that will be better. Small, local competition for ISPs do not make sense over the long term. It may get you fast speeds over the last mile in the short-term, but doesn't get you a fast connection to everywhere else and the investment levels are going to be unable to keep up after the first generation. The oversubscription model benefits from national scale, and even a national last-mile telecom without a national fiber network will have problems matching the cost structure of their competitors (as we recently saw with TimeWarner Cable). The infrastructure doesn't scale operationally or financially otherwise.
- amelius 10y agoTelecom is a commodity market, so a race to the bottom is inevitable, unless there is a monopoly (or quasi monopoly) involved.
- acaloiar 10y agoMajor communications mergers like this and AT&T/Time Warner read like a chapter from Tim Wu's "The Master Switch". The path forward for these new communication conglomerates is either profound failure a la AOL/Time Warner, or a change in the Net Neutrality legislation that has traditionally precluded their success.
- rayiner 10y agoI'm not sure if I got the same thing out of Master Switch. Clearly the hero of that book was Theodore Vail and AT&T as the enlightened monopoly.
- acaloiar 10y agoMajor communications mergers like this and AT&T/Time Warner read like a chapter from Tim Wu's "The Master Switch". The path forward for these new communication conglomerates is either profound failure a la AOL/Time Warner, or a change in the Net Neutrality legislation that has traditionally precluded their success.
- crb002 10y agoPrisms for wave division multiplex keep on getting more color channels while speed of light stays the same. What is the physical limit of prisms?
- crispyambulance 10y agoThe prisms aren't the limiting factor. The limiting factor is the fact that the optical signal for any given channel will "widen" in bandwidth when you modulate it. Some modulation schemes are better than others and you can do some tricks like using orthogonal polarizations. At the end of the day, if you modulate a signal at higher and higher rates, it takes more and more bandwidth. That's your real limiting factor.
- mmmBacon 10y agoSort of. We are able to shape these spectra now to improve the spectral efficiency (when using colorless muxing). The next generation of coherent modems will have a 25G granularity and SW will tune the modem to maximize capacity for a given reach. Higher order modulation requires more SNR so this is the real limitation. For relatively short reaches the modulation order will increase. This improves the spectral efficiency. For longer reaches lower order modulation will be needed but the baud rate can increase. We can can however use other wavelength bands like L band to double the capacity. You are already seeing this in new submarine cables.
- mmmBacon 10y agoThere is plenty of BW available in the fiber. A nit, we don't use prisms to combine and separate the colors. We are getting more data in the fiber by increasing the modulation complexity and by making advances in forward error correction. We are seeing FECs now that have 12.3dB gain and are approaching the Shannon Limit.
- patrickg_zill 10y agoIn addition to the tax benefits someone mentioned, Level 3 has massive voip and traditional voice assets. They are a huge wholesaler to other voip companies.
- starcaller 10y ago34B is the kind of money I can only dream of. Hell, I don't think I can even afford to dream about it.
- Roritharr 10y agoI always wonder how companies like this get founded. So i checked their own history page which includes this statement which reads so dry, i have to blow the sand out of my eyes by the bucket: "Our business started as part of a subsidiary of a construction company that created one of the first competitive local exchange carriers, MFS Communications." If you follow that trail of companies, you feel like you've hit "deep corporate america" where nothing has a founder and everything is a subsidiary of some larger corporate division of something.
- chimeracoder 10y ago> If you follow that trail of companies, you feel like you've hit "deep corporate america" where nothing has a founder and everything is a subsidiary of some larger corporate division of something. A corporation is literally just a group of people acting together. Much as the tech world likes to maintain the image of the visionary individual put forth by the ideology of creativity, that's of actually how the world usually works. Most innovation happens when groups of people leverage their existing collective abilities together well.
- kerbalspacepro 10y agoA corporation is a collection of assets owned by stockholders.
- josh_carterPDX 10y agoCenturyLink has been quietly making great acquisition moves for the past few years. My opinion is this helps move them to be a bigger player in the market. Now they can further compete with companies like Verizon for more business market share.
- csours 10y agoEDIT: Disregard this comment Leaving my mistake for context. --- L3 is also a defense contractor. I wonder what happens when a company is purchased for one line of business, but is under contract on other, very different, lines of business.
- pyvpx 10y agotwo completely different companies.
- alfalfasprout 10y agoNo, you're thinking of L3 Communications. Totally different companies. Level 3 is a backbone provider, L3 specializes in military communications technology.
- dpcx 10y agoWhile a case of mistaken identity, this is an interesting question to consider.
- mgbmtl 10y agoInteresting paper on the falling pricing of transit (2010) : http://drpeering.net/white-papers/Internet-Transit-Pricing-Historical-And-Projected.php http://drpeering.net/white-papers/Internet-Transit-Pricing-H... On the other hand, I understand transit is a commodity, but not sure I want to see what happens when a "too big to fail" company goes under, in countries that have heavily-privatized backbones.
- dsr_ 10y agoFiber links are valuable long-term assets, and remaining competitors will generally be happy to buy them from a distressed company.
- neurotixz 10y agoHappened here in Canada with Teleglobe. All their assets (mainly buried fiber links) were purchased for cheap by Tata Communication, which has been growing since.
- nwrk 10y agoThe paper is totally opposite (but make sense to me with increasing fiber deployed) what Cloudflare is saying[1] and the reason for removing PoPs from their free and pro plans [1] https://blog.cloudflare.com/bandwidth-costs-around-the-world/ https://blog.cloudflare.com/bandwidth-costs-around-the-world...
- bogomipz 10y agoThe article mentions this interesting detail: "The deal also promises to help CenturyLink by giving it access to about $10 billion in tax credits that Level 3 is carrying on its books, Jennifer Fritzsche, an analyst with Wells Fargo Securities LLC, said last week." Can anyone comment/speculate on why L3 has $10 billion in tax credits that is "carrying"?
- SysArchitect 10y ago$10 Billion worth of debt that is tax deductible as losses. "Tax credits" :P
- charlesdm 10y agoSo that's 35% of $10bn right there, paid for by the US government. You've got to love financial engineering sometimes.
- l3m0ndr0p 10y agoWow! All of these "internet" provides have the capital to buy other internet companies/providers. BUT they cannot expand and provide access. We need some kind of government regulation and incentive in the USA to expand fiber (fuck wireless) to every city, town and state in the USA.
- yeukhon 10y agoWow, CTL already go Tier3 right? They now got Level 3. They pretty much have half of the telenetwork industry in the U.S., correct?
- jmcqk6 10y agoTier3 was an IaaS. You are not correct.
- ChuckMcM 10y agoInteresting, CL has such terrible customer service, perhaps Level 3 was treating customers too well and Century Link thinks they can help them with that :-) It is interesting that CL seems to be operating out of the old MCI playbook. Here I thought the days of aggregating a bunch of ISPs into a mega communication company were behind us.
- brightsize 10y ago>CL has such terrible customer service I can vouch for this. We have a choice between CL and Comcast here for residential service and I've used both. CL has a pretty solid DSL service but $deity help you if you ever need to call in for some problem you're having with it. Expect to spend multiple-hours on the phone while you're put on hold for extended periods, have your call dropped, get routed to numbers that don't answer, and, if you're lucky, speak to a person who has no idea what you're talking about but might know someone who can help, "let me transfer you"... Rinse and repeat. The only good that I can say about CL is that their come-out-to-your-house techs seem to know more or less what they're doing and have solved DSL and analog line problems for me quickly and without additional pain.
- ChuckMcM 10y agoHey, they sent my account to collections twice after it was already closed for "non payment" even though it had a balance of zero. After the second conference call with the debt collector, the Century link accounts people and me to unwedge that mess I explained that if Century link did this a third time I would sue them in small claims court for the maximum amount allowed for harassment and punitive damages.
- mdip 10y agoI was an employee for Level 3, coming from the Global Crossing acquisition, for around 17 years, choosing to leave early last year (and unlike most former Level 3/Global Crossing employees, this choice was not forced upon me). Internally (and by, internally, I mean within my team, not within management or anyone who makes decisions of this nature), we'd always seen CenturyLink as an interesting prospect for merger. The two companies' footprints and businesses appeared to compliment each other. It was generally dismissed out of hand because of the consumer side of CentryLink. Level 3 (and even less so with Global Crossing), focused on carriers and Fortune 50-100 businesses as their core and shied away from the more expensive, less profitable consumer facing pieces. A bit of history for those who weren't around in the 90s: When thinking CenturyLink, think Qwest (and commercials about the little motel in the desert with "Cable TV" replaced by media services delivering every television show and movie produced in the history of ever). They were one of the formerly local telecoms that expanded into long distance/fiber/internet after the 1996 telecom deregulation[0]. Level 3's business is Carrier and Enterprise with much of the Enterprise piece coming from the Global Crossing side of it because, at the time, we effectively couldn't compete with Level 3. We'd come in to bid a project at a price we could eek out a small profit on and would be undercut because they owned far more local which had the effect of lower cost of access and lower complexity for the company we were selling to. Our focus was Enterprise where the margins were higher, we could work with other carriers to provide the services (often Level 3) and step in with a better understanding (and willingness to "do practically anything" to win the contract -- our CEO, after all, was John Legere and the way he runs T-Mobile came from the way he ran Global Crossing: "Hug the Customer" was a mantra). Level 3 (like all telecoms) is a run to the bottom as far as price is concerned. Cost of access is pretty much it in this business. The expense is so large it eclipses pretty much everything else. Being able to move more things onto your own network reduces that expense (and in-turn results in revenue from others paying you for access to those local components). This fits well with CenturyLink. The rumblings of this deal internally were strong over the last few months (I don't work there any longer and I heard the rumors[1]). Since this had come up from time to time, I wasn't surprised to hear it again and it still came with the difficulty of figuring out how a deal like that would work. Internally, most employees assumed it'd be a Level 3 purchase of CenturyLink, but a look at the fundamentals of the two businesses made something like that wishful thinking on the part of employees who are really tired of all of the layoffs and really didn't want to see a large one that would come as a result of being purchased. This will be an interesting transition for the employees of Level 3 proper. They're used to doing the buying and they're actually more used to being the company that comes in, strips the company they purchased (of staff) and imposing the "Level 3 way" on the purchased entity. It was clear that was their position during the Global Crossing merger and morale became greatly affected when some Global Crossing employees took leadership positions and imposed "The Global Crossing way" on Level 3. This resulted in a pretty dramatic culture clash that wasn't really resolved even by the time I left (which was shortly after the TW Telecom merger!). At least at that point they were still suffering getting the various pieces/parts of the company together and operating as a single, well oiled, machine. Adding this to the mix will further complicate those efforts. Level 3 was known for being good at making a purchase and bad at integrating that purchase. I think they did a better job with the Global Crossing and TW acquisitions, but "better" was in comparison to the "abysmal" job they did with the six that were there prior. They still have a history (and current?) reputation of shedding jobs about every 6 months (5-10% across the board) that despite having a better few years, didn't change after I left[3]. They have difficulties hiring top talent as a result, though I'm sure this problem exists across telecom unless you're one of the two big guys. Apologies for the lengthy and poorly revised post. The speculation contained within is my own and has not been influenced by internal employees -- and may be wildly off since I haven't been an employee there for well over a year, but I thought I'd share in case it spurs further discussion that irons out some of the wrinkles. This will be an interesting change in the landscape of telecom, putting a really large competitor against some of the "bigs" who's reputation is best summed up by this SNL sketch: https://www.youtube.com/watch?v=CHgUN_95UAw https://www.youtube.com/watch?v=CHgUN_95UAw [0] Which is in and of itself a terrible description. It was less a "deregulation" than a "re-regulation" and like all government regulations of this kind, it defined a set of "winning and losing business strategies" in this sector that were different than the strategies that existed before. And a set of tricks/arbitrages that would create entirely new businesses designed to provide nearly free services by leveraging cost of access (in a quasi tariff style). [1] Before I get anyone in trouble, the rumors I heard were not from people who would have been in any position to know about something like this and were little more than the speculation of previous years ... along the lines of "wouldn't it be great?". I was able to connect the dots, though, by discovering that certain of my former coworkers were unusually busy -- so busy that I couldn't get in touch with them due to their workload. Knowing what they were often involved in, and combining the increase in talk about CenturyLink led me to fully believe this deal was going to land at some point. As a result, I didn't do any stock transactions to avoid the appearance of having "insider information" that I didn't reliably or accurately have. [2] A look at the fundamentals of both business indicated that as wishful thinking. It was clear to me if there was going to be a purchase, it was Level 3 who was getting bought. [3] This was a small bit of my motivation for leaving. I'd been through 30-35 "Reductions in Force" and came out still employed and had continued to have the confidence of management up to the VP level, so I was not concerned about losing my job, but all of those "RIF"s take a toll on you. I'm still amazed, to this day, how efficiently our process for laying off employees had become. We had entire systems/applications built for the task and it was these sorts of things. That sort of thing bleeds into the culture of the company and it was a culture I had grown very tired from.
- walrus01 10y agohttp://fuckinglevel3.com/ http://fuckinglevel3.com/