Earlier today Level 3 Communications said it would acquire Global Crossing for approximately $3 billion in stock (and LVLT assuming $1.1 billion in debt). What’s the big-picture significance of this deal, which brings together two major players in Internet backbones, IP services, undersea cables and content delivery? Here’s a roundup of notable analysis and commentary from around the web:
- The Yankee Group – The scale of this new company creates a more formidable network services competitor to the likes of AT&T, Verizon Business, BT, etc. With the breadth and depth of its coverage and data and converged services offerings at both the wholesale and large enterprise segments, this new company provides a formidable option for many companies with global needs.
- Bloomberg – The deal will combine two unprofitable companies with total revenue of $6.26 billion as of last year, and cut annualized capital spending by about $40 million, according to the statement. It will also help reduce the pressure on prices, which have declined by as much as 30 percent a year in the industry, said Donna Jaegers, an analyst at DA Davidson & Co. “This is what telecom has needed for a long time,” said Denver-based Jaegers, who recommends buying both stocks. “You have way too many players.”
- Fierce Telecom – One of the major growth drivers Level 3 will be around CDN services. While it has extensive CDN presence in the U.S., the Global Crossing acquisition will give it instant CDN access in Latin America, one that Global Crossing recently bolstered with its acquisition of Genesis Networks, in addition to mid-market and large enterprise services.
- GigaOm – With the metro fiber assets, undersea cable and long-haul fiber crisscrossing the world, this deal allows Level 3 to play with broadband’s big boys, as those boys get bigger. For example, the industry is consolidating in terms of sharing towers for wireless networks, monopoly wireline providers combining and even wireless providers getting bought. As the last mile and wireless providers consolidate, Level 3 needs the power and scale to control its own destiny.
- Telecom Ramblings – Both companies have underlying strategic needs that this deal fills. Level 3 needs greater scale to bear the load of its debt while maintaining a growth footing. Global Crossing needs US and continental European metro access to boost its margins, and for two years now has been quite open about the benefits of consolidation. That these two eventually managed to agree on a price is not nearly as surprising as how long it has taken.