CenturyLink To Buy Level 3 For $34 Bln; Sees Q4 EPS Below Market Estimates

(RTTNews) - Integrated communications company CenturyLink (CTL) announced Monday that it has agreed to acquire Level 3 Communications, Inc. (LVLT) in a cash and stock transaction valued at approximately $34 billion, including the assumption of debt.

Under terms of the agreement, Level 3 shareholders will receive $26.50 per share in cash and a fixed exchange ratio of 1.4286 shares of CenturyLink stock for each Level 3 share they own. This implies a purchase price of $66.50 per Level 3 share, based on a CenturyLink's $28 per share reference price.

The deal represents a premium of approximately 42 percent based on Level 3's unaffected closing share price of $46.92 on October 26, the last trading day prior to market speculation about a potential transaction.

Upon the closing of the transaction, CenturyLink shareholders will own approximately 51 percent and Level 3 shareholders will own approximately 49 percent of the combined company.

CenturyLink expects the transaction to be accretive to free cash flow in the first full year following the close of the transaction and significantly accretive on an annual run-rate basis thereafter.

After the close of the transaction, Glen Post will continue to serve as Chief Executive Officer and President, and Sunit Patel, Executive Vice President and Chief Financial Officer of Level 3, will serve as Chief Financial Officer of the combined company.

In a separate statement, CenturyLink said it expects fourth-quarter adjusted earnings per share between $0.53 and $0.59, operating revenues between $4.28 billion and $4.34 billion and core revenues between $3.86 billion and $3.92 billion.

On average, analysts polled by Thomson Reuters expect earnings of $0.64 per share on revenues of $4.38 billion for the quarter . Analysts' estimates typically exclude special items.

Further, Level 3, in its statement, said it is reiterating fiscal 2016 outlook of 10 to 12 percent Adjusted EBITDA growth and $1.0 to $1.1 billion of Free Cash Flow for the full year 2016.

In pre-market activity, LVLT stock is gaining 3.89 percent at $56.15.