Centurylink Inc (NYSE:CTL) Jumps on Deal Talk

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Centurylink Inc (NYSE:CTL) leaped higher Thursday following a report in the Wall Street Journal that it was in talks to merge with Level 3 Communications, Inc. (NYSE:LVLT).

The WSJ report, which said a deal could create a $50 billion behemoth, spurred a 9.73% rally in CTL’s shares. CTL closed at $31 after 36.62 million shares changed hands.

Centurylink Inc (NYSE:CTL) is an integrated communications company that offers hosting, cloud and IT services. It provides broadband, voice, video, data and managed services over a 250,000-route-mile U.S. fiber network and a 300,000-route-mile international transport network.

Level 3 Communications, Inc. (NYSE: LVLT) is a Fortune 500 company that provides local, national and global communications services to enterprise, government and carrier customers.

Centurylink Inc (NYSE:CTL) may merge with Level 3 Communications

According to the WSJ, the two companies are in advanced merger discussions, and a deal could be struck, and announced, as early as next week.

The companies did not comment, and the WSJ quoted sources who asked not to be named.

The combined company would boast of a huge consumer subscriber base, as well as thousands of enterprise clients connected via fiber optic networks. Geographically, their combined networks would span the US, Europe, South America and Asia.

The market capitalizations of the companies, as at yesterday’s close, were $16.78 billion and $18.80 billion respectively, for CTL and LVLT.

It is somewhat fitting that the two companies, which themselves grew through aggressive acquisitions, now see each other as the next big consolidation opportunity – a sign of how the landscape has turned barren for new targets.

Wells Fargo’s Jennifer Fritzsche (as quoted by Barrons): “We believe a Level 3 merger or purchase could make sense for a telecom carrier looking to deepen its fiber presence both inside and outside of its network. CenturyLink does not have wireless and it has a less robust fiber footprint than some of its peers. We believe CenturyLink is motivated to be aggressive with its fiber push to keep up with the competition. The addition of Level 3 helps it do this.”

There could also be “significant” cost synergies, the analyst said.

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