CenturyLink Said to Be in Advanced Talks to Acquire Level 3

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(Bloomberg) — CenturyLink Inc. is in talks to acquire Level 3 Communications Inc., according to people familiar with the matter, a deal that would create a more formidable competitor in the market for business telecommunications services.

While talks are advanced, a deal is still several weeks away, said the people, who asked not to be identified because the discussions are private. Level 3 surged 11 percent to $51.87 at the close in New York, it’s biggest one-day gain in 2 1/2 years. CenturyLink climbed 9.7 percent to $31, the most since February. The companies declined to comment.

Level 3 is one of the largest providers used by internet services including Netflix Inc. and Google to route traffic across the web. CenturyLink, which has been exploring the sale of its data center business, is one of the biggest phone companies in the U.S., formed after CenturyTel Inc. bought Embarq Corp. in 2009 and acquired Qwest Communications International Inc. two years later.

A combination would solve some issues for CenturyLink, said Jennifer Fritzsche, an analyst with Wells Fargo Securities LLC. For one, Level 3 has $10 billion in tax credits that it is carrying on its books, which the company could transfer to a buyer, she said.

“CenturyLink has a tax issue, it needs more fiber and the need to grow,” Fritzsche said. “Level 3 checks all those boxes.”

Both companies have contended with growing competition from cable providers and other smaller rivals offering internet and phone connections for businesses. CenturyLink, which also offers residential landline phone and internet services, gets about two-thirds of its revenue from business customers.

Bigger Network

The combination would give CenturyLink a much bigger network and make it “more competitive in enterprise,” said Joshua Yatskowitz, an analyst at Bloomberg Intelligence.

A merger would be one of the biggest telecommunications deals of the year. Level 3, based in Broomfield, Colorado, was valued at $17 billion at Wednesday’s close and has about $11 billion in debt. CenturyLink, based in Monroe, Louisiana, was valued at about $15 billion and has about $19 billion in debt.

Level 3 provides so-called content-delivery network services, particularly to Netflix. With more people streaming TV shows and movies over the web, distributors like Netflix have to arrange with a content delivery network to set aside enough servers and transportation capacity for faster load times. By moving the content closer to users and managing traffic patterns viewers can benefit from less delays and buffering of shows.

Level 3 competes against CDN rivals Akamai Technologies Inc. and Limelight Networks Inc. for fees from media companies to disseminate content on servers across the world.

In late 2010, Level 3 won the high-profile Netflix account away from Akamai. Telecom and cable companies including Comcast Corp., AT&T Inc. and Verizon Communications Inc. have also been adding content-distribution capabilities to their networks.

The Wall Street Journal reported on the merger talks earlier Thursday.

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