Level 3 Bids to Acquire Global Crossing, Adding Customers and Coverage

| April 11, 2011 | Network Access and VPN Services
| Analyst: Brian Washburn

Event Summary

April 11, 2011 – Level 3 will acquire Global Crossing in an all-stock transaction valued around $3 billion, including $1.1 billion assumption of net debt. The combined companies' pro forma revenues for 2010 were $6.26 billion, and combined pro forma EBITDA was $1.27 billion for the year. Level 3 expects to spend $200-$225 million on the integration, and to realize $300 million annual synergy and $40 million capital cost reduction from the combined company, with two-thirds of synergy savings realized within 18 months of close. Level 3 expects the acquisition to close by year-end 2011.

Quick Take

Analytical Summary

• Current Perspective: Moderate to Level 3, because the carrier gets a global network and sales force that it can add to its own. Level 3 can consolidate networks and operations to reduce its costs, but it does not forecast a significant revenue boost from the acquisition, which is probably accurate. Aside from its worldwide reach, Global Crossing contributes its successful Latin America practice and extensive UK coverage to Level 3. Level 3 probably has little need for Global Crossing's North American network.

• Vendor Importance: Very high to Level 3, because the carrier needed to find a way to get its declining revenues and earnings (EBITDA) moving back in the right direction. The Global Crossing acquisition is that kind of project, enabling Level 3 to eliminate overlapping operating and network costs and reduce capital expenses to improve its overall financials. Level 3 is adding Global Crossing's $1.1 billion debt to its own, but is not spending additional precious cash on the deal.

• Market Impact: Moderate on international competitors, because the fundamental portfolio of services that Level 3 and Global Crossing offer will not change much. Consolidating individual product lines will take varying amounts of effort, but outside complementary geographies, neither company had major missing network-facing services that will boost revenues. The wholesale-oriented nature of both companies should make interconnection of networks relatively fast and easy following the close of the acquisition.

CLIENTS ONLY

Current Perspective

Competitive Strengths and Weaknesses

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