Level 3 Communications: Global Crossing Deal Makes Sense From a Debt Perspective

Level 3 Communications (LVLT) is a facilities based provider of a broad range of integrated communications services. The company’s network is an advanced, international, facilities-based communications network designed to employ and take advantage of rapidly improving underlying optical, Internet Protocol, computing and storage technologies.

We noted in early February that capital expenditures plus net cash interest expenses of $555 million would exceed a billion dollars going forward. EBITDA will not catch up
until 2012, assuming no major events occur and LVLT can maintain some semblance
of growth. This, in part, was enough to keep LVLT’s stock price stuck in the low
one dollar range until there was more visibility.

A major event has occurred. Level 3 Communications entered into a definitive agreement under which Level 3 Communications announced on April 11, 2011 that it will acquire Global Crossing (GLBC) in a tax-free, stock-for-stock transaction. Global Crossing shareholders will receive 16 shares of Level 3 common stock for each share of Global Crossing common stock or preferred stock that is owned at closing. The deal includes the
assumption of approximately $1.1 billion of net debt as of December 31, 2010.
This was a good deal for LVLT for reasons described in our previous
. The stock is presently trading in the mid-$2 range, up 48% since the deal was announced.

There are concerns about LVLT’s debt load going forward, so this article
takes aim at the debt. LVLT debt increased from $6.5 billion in 2010, the acquisition pushes the combined entities debt to a whopping $8.6 billion ……Continue reading at SA





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