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Level 3 acquiring Global Crossing

Level 3 (www.level3.com) is picking up Global Crossing (www.globalcrossing.com) for around $3 billion, including about $1.1 billion of debt on GC’s books and the rest in stock to GC shareholders.   The total company will (well, would have) combine 2010 revenues of $6.26 billion and adjusted EBITDA of $1.27 billion “before synergies” (i.e., job cuts, streamlining) and $1.57 billion after “expected synergies.”

Global Crossing shareholders will get 16 shares of Level 3 common stock for each share of Global Crossing common or preferred stocked owned at closing.

Putting together the two companies is expected to add $300 million to the bottom line through “synergies” and reduce capital expenditures by about $40 million.  Savings are expected to break out into 39 percent from network expenses, 49 percent from operational expense savings and 12 percent from the reduction in capital expenditures.  Costs to merge the two are expected to cost between $200 to $225 million, with 55 percent coming from operational expenses (pink slips) and 45 percent for capital expenses.

In addition, the deal is expected to add Level 3’s free cash flow, improve Level 3’s credit rating, add an expanded service portfolio since Global Crossing has been focusing on adding more services, and give the combine company better reach into the enterprise between L3’s local fiber networks and GC’s services.

Singapore Technologies Telemedia, Global Crossing’s largest shareholder, will become a significant investor in Level 3 and get seats on Level 3’s board.

Some Wall Street analysts are skeptical.  Piper Jaffray notes there were problems with Level 3’s earlier acquisitions, ranging from delays in integrating billing to “disruptions” in procurement and delayed installation times. However, “the company may have learned from its mistakes.”

It’ll also be interesting to see the regulatory comments. Level 3 does a lot of government business, so having a significant minority shareholder may cause some heartburn.

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