Level 3 is taking another big step in trying to drive profitability and free cash flow out of its assets, announcing on Monday that it would acquire rival Global Crossing (Nasdaq:GLBC) in a $3 billion stock deal. Assuming that the deal goes through, Level 3 should be able to drive some meaningful synergies, but it is an open question as to whether even this combined company will produce compelling returns on its huge asset base.
Terms of the Deal
Level 3 will be paying 16 of its own shares for every share of Global Crossing, a deal that valued Global Crossing at just a bit over $23 based on Friday's close. Level 3 will also be taking on $1.1 billion in Global Crossing debt, bringing the total value of the deal to $3 billion.
At those prices, Level 3 is paying almost eight-times trailing EBITDA, and valuing Global Crossing at about 1.2-times on an EV/revenue basis. So even though Level 3 is paying a 55% premium to acquire Global Crossing, it is still valuing its target at a lower multiple that it itself trades for currently.
Although not part of the deal itself per se, Level 3 has also announced a shareholder rights plan in conjunction with the deal. Now, this is not a run-of-the-mill rights plan; the sort that companies will issue in the name of "protecting" shareholders while actually only protecting their cushy seats. This plan is about limiting ownership stakes in Level 3 that could imperil the company's considerable tax loss carryforwards or net operating losses (NOL). (For related reading, check out A Sticky Fight Between Comcast And Level 3 Over The Web.)
To read the full piece, please click below:
http://stocks.investopedia.
No comments:
Post a Comment