$34bn CenturyLink-Level 3 merger cleared by US Justice Department
03 October 2017 | Jason McGee-Abe
The US Department of Justice has agreed to clear CenturyLink’s pending acquisition of Level 3 Communications, subject to conditions outlined in a consent decree, including court approval of certain provisions, and other customary closing conditions.
Last month, CenturyLink pushed back the deadline to close the takeover in mid-to-late October. The acquisition is another step closer to completing but the deal remains subject to regulatory approval from the Federal Communications Commission (FCC) and the California Public Utilities Commission, the latter of which is set to vote on the deal at its next general meeting on 12 October. The California Administrative Law Judge has already advised state regulators to approve the deal, saying it is in the public interest.
"We are pleased that the Department of Justice has conditionally cleared CenturyLink's acquisition of Level 3. It is an important milestone in our overall approval process," said John F. Jones, senior vice president for public policy and government relations at CenturyLink.
"We anticipate court approval of our agreed resolution with the Department of Justice as early as this week. We are focussed on meeting our targeted transaction closing timeframe of mid-to-late October."
Both companies filed applications on 21 December 2016 with the FCC seeking the Commission’s approval to transfer control of various licences and authorisations held by Level 3’s operating subsidiaries to CenturyLink. However, the application has been paused since 9 June 2017 on “170 days”. The FCC has an informal timeline of 180 days which is a benchmark to help the FCC reach a decision on most applications relating to complex mergers. It has been 115 days since the clock was paused.
The 9 June 2017 saw CenturyLink submit a letter to the FCC stating that it intended to file additional data to supplement its previous responses.
In response that day, Kris Monteith, chief of the Wireline Competition Bureau, said in a letter to the companies’ respective counsels: “We appreciate your cooperation in providing this material, which we believe is necessary to allow us to complete our review of your applications, and we look forward to receiving it. Once we have had an adequate opportunity to review the new information, including engaging in any discussions with the Department of Justice, as permitted under our rules, and determining whether we need additional information, we will restart the clock.”
Although the FCC "endeavours to meet its 180-day goal in all cases, several factors could cause the Commission’s review of a particular application to exceed 180 days". However, with the Department of Justice agreeing to clear the deal and with CenturyLink estimating the approval to come “as early as this week”, we could see the FCC restart the clock this week with 10 days left.
The consent decree requires the combined company to divest certain Level 3 metro network assets and certain dark fibre assets. These divestitures are not expected to have a material impact on the pro-forma operating revenue and operating cash flows of the combined company.
Metro network asset divestiture
Under the consent decree, the combined company is required to divest Level 3 metro network assets in three metro areas: Albuquerque, N.M.; Boise, Idaho; and Tucson, Ariz. The combined company will continue to serve all current Level 3 customers unless they choose to be served by the buyer of divested assets in each metro area. Where needed to provide uninterrupted service to customers, CenturyLink may purchase some network services from the buyer of divested assets in each metro area. CenturyLink retains all of its existing networks and business operations in these three metro areas and will continue to provide a full suite of telecommunications and data services to residential and business customers.
Dark fibre asset divestiture
The consent decree also provides that the combined company will divest 24 strands of dark fibre connecting 30 specified city-pairs across the US in the form of an Indefeasible Right of Use, a customary structure for such transactions. Because the fibres are not currently in commercial use, this divestiture will not affect any current customers or services.
So far, 24 states and territories have approved or regulatory cleared the acquisition. The following states have already approved the acquisition: Alaska, Colorado, Delaware, Georgia, Hawaii, Maryland, Minnesota, Mississippi, New Jersey, New York, Ohio, Pennsylvania, Utah, Virginia, Washington, West Virginia and the District of Columbia. The transaction has received regulatory clearance from Connecticut, Indiana, Louisiana, Montana, Nevada, Texas and Puerto Rico.
The combined company will offer customers a broader and more complementary range of services and solutions, and enable the advanced technology and growing bandwidth needs of its business, government and consumer customers.
The proposed deal will increase CenturyLink's network by 200,000 route miles of fibre, including 64,000 route miles in 350 metropolitan areas, and 33,000 subsea route miles connecting multiple continents. CenturyLink's on-net buildings are expected to increase by nearly 75% to approximately 75,000.
CenturyLink CEO Glen Post, who is set to lead the combined company, said the "slight delay" is viewed by the company as "manageable", and does not affect the company’s integration plan.
"We are working to obtain the remaining approvals, including the State of California, the Department of Justice, and the Federal Communications Commission, and want to give the regulators time to complete their review process."
CenturyLink CTO Aamir Hussain recently told Capacity that the company had identified almost $1 billion worth of potential synergies from the merger, most of it coming from operational costs around its network. Hussain also said the deal will make CenturyLink "a worldwide player" and "number two in the world in enterprise".
To read the full interview with Aamir Hussain, in which he discusses how CenturyLink will merge its network with Level 3, click here.
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