- Associated Press - Monday, April 11, 2011

WASHINGTON (AP) - Level 3 Communications Inc. said Monday that it is buying Global Crossing Ltd. for $2 billion, joining two major long-distance telecommunications networks that carry massive amounts of Internet and other data traffic in the U.S. and internationally.

Both Level 3 and Global Crossing operate vast networks of optical fiber used by other telecom carriers, corporations and government agencies. The combined company’s reach would extend to 70 countries on three continents.

Despite steadily increasing data traffic, the prices Level 3 and companies like it can charge for carrying that traffic have been driven down by competition, said Erik Kreifeldt, a senior analyst with the research firm TeleGeography. Meanwhile, the carriers have high fixed costs, including the cost to lay fiber-optic cables on the bottom of the ocean.

Kreifeldt said the acquisition of Global Crossing will help Level 3 gain scale, enabling it to put more traffic over its networks.

It will also let Level 3 expand its geographic reach. Both companies already operate in North America and Europe, but Global Crossing gives Level 3 a strong presence in Latin America and supplements its networks in Britain _ particularly in cities in both markets.

In addition, the purchase of Global Crossing brings Level 3 several new businesses, including data center operations and “cloud computing” services, which deliver software, data storage and other services over the Internet.

Global Crossing shareholders would receive 16 Level 3 common shares in exchange for each share of Global Crossing common or preferred stock. Global Crossing shareholders would have a 43 percent stake in the new company.

Based on Level 3’s Friday close at $1.44 per share, the transaction values Global Crossing at $23.04 per share. Global Crossing’s shares jumped $8.66, or 58.5 percent, to $23.46 in Monday afternoon trading.

Level 3 shares rose 16 cents, or 11 percent, to $1.60.

The transaction is expected to close before the end of the year, pending regulatory and shareholder approval. Level 3 would assume $1.1 billion of Global Crossing’s debt.

Level 3 is based in Broomfield, Colo. Global Crossing is based in Bermuda, but its largest shareholder is Singapore Technologies Telemedia, which has approved the deal. ST Telemedia is in turn owned by the investment arm of the Singapore government.

ST Telemedia bought Global Crossing out of bankruptcy protection in 2003, paying $250 million for 61.5 percent of a company that had declared $22 billion in assets in its 2002 bankruptcy. It was, at the time, the largest telecommunications bankruptcy ever. The Singapore firm also gave Global Crossing $200 million to pay creditors.

Like other victims of the Internet boom of the late 1990s, Global Crossing had overinvested in optical networks, expecting traffic to grow much faster than it actually did.

In a separate announcement Monday, Level 3 said it has adopted a stockholder rights plan to deter trading that would result in an ownership change because it wants to protect its ability to reduce its federal tax bills by deducting past losses.

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