Oppenheimer Gives Color On Level 3 Communications' Recent Acquisition

Level 3 Communications LVLT announced the acquisition of Global Crossing GLBC for 16 shares of LVLT per GLBC share. Oppenheimer is publishing a summary pro forma model with key financial metrics. In Oppenheimer's view the transaction will drive meaningful synergies, which will allow the company to delever and address the more sizable maturities coming due in 2014. Oppenheimer rates LVLT Perform on valuation but see some potential upside from higher than expected revenue growth. It believes that emerging carriers will benefit from a slightly improved pricing environment, while the LVLT-GLBC combination is negative for CDN providers and carrier-neutral data centers. Given the improved regulatory environment and still oversupplied long-haul industry, it expects further consolidation. Oppenheimer believes that the new LVLT can grow FCF to the $600-700 million range by 2013. In fact, the key driver for LVLT's search for consolidation alternatives was to generate FCF to delever. It seems that LVLT is unlikely to be FCF positive on its own in the next year. Oppenheimer has a Perform rating on LVLT LVLT closed Monday at $1.70