This will give Level 3 a valuation of $69.92 a share, which represents a 49 percent premium to the company's closing price of $46.92 on October 26. We are still evaluating the deal, but as of now, we expect to reduce our CenturyLink fair value estimate by around 10%.
CenturyLink CEO Glen Post will continue to serve as president and CEO of the new company when the deal closes.
Accounting for those served by both companies, CenturyLink's on-net buildings are expected to increase by almost 75 percent to about 75,000, including 10,000 buildings in EMEA and Latin America.
"The combination makes a lot of sense given the combination of Level 3's and CTL's legacy Qwest national wireline business networks", Phil Cusick, an analyst at JPMorgan Chase & Co., said in a note Monday, referring to CenturyLink by its ticker symbol.
In quarterly results announced today, CenturyLink reported revenue of $4.4 billion and net income of $152 million, while Level 3 reported $2 billion in revenue and net income of $143 million. Bringing Level 3 into the fold will enable CenturyLink to expand its fiber optics and data services capabilities to enterprises and extend its reach with small businesses and consumers.
CenturyLink gets about two-thirds of its revenue from business customers, while Level 3's comes entirely from that segment.
Level 3 (LVLT) shares were up 5% in early trading Monday to $56.83, while CenturyLink (CLT) stock was down more than 9% to $27.62.
The transaction, subject to approval by CenturyLink and Level 3 shareholders, is expected to close by the end of third quarter 2017.
CenturyLink, a local phone service provider, is set to offer $26.50 in cash and 1.4286 CenturyLink share for each share of Level 3 - worth $19bn (£15.6bn) or $34bn including debt (£28bn). But few were thrilled by the prospect of receiving CenturyLink shares as payment.
Analysts had expected revenue of $4.38 billion and earnings of 64 cents, according to Thomson Reuters I/B/E/S.
Level 3 is a major backbone provider also focused on enterprise connectivity and managed services, which operates in 60 countries on three continents. In connection therewith, CenturyLink has received financing commitments from BofA Merrill Lynch and Morgan Stanley & Co.
Citigroup acted as Level 3's financial adviser and Willkie Farr & Gallagher LLP as its legal adviser.