When Monica Walton walked into her Broomfield office at Level 3 Communications on Wednesday morning, she already felt nostalgic.
“I came in and the sign has been changed on our campus,” said Walton, who has worked for Level 3 for 12 years and on Wednesday became CenturyLink’s general manager for Colorado. “This is happening globally, though not immediately everywhere. There are still a number of Level 3 buildings in Denver with Level 3 signage. That’s the first step of combining the companies.”
Wednesday marked “Day One” of Monroe, La.-based CenturyLink’s purchase of debt-laden Level 3, one of Colorado’s largest companies and owner of one of the world’s largest internet networks. The deal, valued at $30 billion, is more like a merger, giving CenturyLink shareholders 51 percent ownership and Level 3 stockholders 49 percent. Level 3 CEO Jeff Storey becomes president of CenturyLink and will take over as the leader when CenturyLink CEO Glen F. Post III retires Jan. 1, 2019.
But after all the building signage, employee business cards and stationery switch over to CenturyLink, Level 3 will be no more. Its website already redirects to CenturyLink.
“Level 3 is going away,” said Walton. “It’s gone today.”
Level 3 is lesser known in the consumer world than CenturyLink, which provides internet, phone and TV service to millions of consumers across the nation, including Denver. But on Level 3’s network, data flies back and forth before reaching a customer’s own internet service provider, such as Comcast or CenturyLink.
Level 3, which hasn’t dealt with consumers, offers some last-mile service to office buildings.
The company, which spun off from another business that was founded in Nebraska in 1985, took off in the late 1990s after moving to Colorado and going public. The telecom is known for building and managing the internet backbone, the massive fiber lines that connect computers to continents and countries. In 2011, it acquired Global Crossing, the former tech darling known for laying fiberoptic cable lines at the bottom of the ocean.
Level 3 has been on the Fortune 500 list of the nation’s largest companies for years. This year, it ranked No. 336, down three spots from last year.
But for years, it has carried a massive amount of debt — nearly $10 billion since at least around 2000. And maintaining internet pipes offers only so much value. In recent years, Level 3 has focused on new services to sell to clients, such as cybersecurity protection since it can see 70 percent of the world’s internet traffic to help suss out where attackers originate.
The company last year reported annual revenue of $8.17 billion, compared with $8.23 billion in 2015. During the same period, Level 3’s net income fell to $677 million, from the prior year’s $3.4 billion, which included a one-time $3.3 billion tax gain.
The much larger CenturyLink ranks No. 116 on the Fortune 500 list. In 2016, it reported adjusted annual revenue of $17.5 billion, down from the prior year’s $17.9 billion. Annual adjusted net income declined to $794 million from 2015’s $929 million.
CenturyLink has struggled in recent years because of its reliance on legacy products — landline telephones and internet services such as DSL. After it acquired Denver-based telecom Qwest in 2011, it served 15 million phone and 5 million broadband subscribers in 37 states. At the end of 2016, numbers shrank to 11.1 access lines, according to CenturyLink’s annual report. Broadband subscribers numbered 5.9 million in 2016, down from 6 million a year earlier.
“The company’s purchase of Level 3 should help stem declines as it seeks to stabilize revenue. Management plans to achieve this through investments in broadband network speeds and updated services,” wrote Joshua Yatskowitz, an analyst for Bloomberg Intelligence who also noted that CenturyLink’s total revenue has declined each year since 2005.
Buying Level 3 expands CenturyLink’s presence significantly. It doubles CenturyLink’s ownership of fiberoptic route miles, which is now at 450,000. And its internet connection services now reach 350 metropolitan areas and more than 100,000 buildings worldwide.
The access to Level 3’s pipes means CenturyLink gains more control of its own services and network, which should improve and speed up service, Walton said. “We own the network from end to end and don’t have to rely on another provider for that last mile,” she said.
The $30.3 billion price tag breaks down into cash and CenturyLink shares for Level 3 stockholders. Level 3 shareholders received $9.6 billion or $26.50 per share in cash plus 1.43 shares of CenturyLink stock at a total value of $9.8 billion. Level 3 also had about $10.9 billion in debt.
Storey, Level 3’s CEO, has already been named to replace Post as CEO when Post retires. Storey, who is now CenturyLink’s president and chief operating officer, has said he plans to remain in Colorado after he becomes CEO.
Other Level 3 executives who joined CenturyLink’s management team include Laurinda Pang, president of international and global accounts management and who was in a similar role at Level 3; and Sunit Patel, Level 3’s chief financial officer and who takes on the same role at CenturyLink. The company will remain headquartered in Louisiana, although it will have a large presence in the Denver area and Colorado.
Officials wouldn’t break out how many employees are in Colorado, but CenturyLink employs 52,000 people worldwide. After acquiring Qwest, CenturyLink has a large presence in the Denver area. At the end of 2016, it employed 40,000 companywide. Level 3 had 12,600 workers globally in December.
In April, CenturyLink said it employed 4,800 people in Colorado. Level 3, which hasn’t shared the size of its workforce in the past couple years, employed about 4,000 after its purchase of TW Telecom in 2014.
CenturyLink made its bid for Level 3 on Halloween in 2016. Shareholders approved the deal, but it took months to gain necessary regulatory approvals from more than 20 state public utility commissions, the U.S. Deptartment of Justice and the Federal Communications Commission.
The Justice Department had previously asked CenturyLink to offer long-term leases for dark fiber connecting 30 cities and to sell off some of Level 3’s assets. The agency said this would keep internet prices competitive because the companies had competed to provide “lower prices and higher-quality services.”
The FCC was the last regulatory approval needed. California, which was the last of 23 states, approved the acquisition Oct. 12.
CenturyLink’s stock price fell 6.05 percent Wednesday to close at $17.85.
