Forward Looking Statements
Except for the historical and factual information contained herein, the matters set forth in this communication, including statements regarding the expected timing and benefits of the proposed transaction, such as efficiencies, cost savings, enhanced revenues, growth potential, market profile and financial strength, and the competitive ability and position of the combined company, and other statements identified by words such as “will,” “estimates,” “anticipates,” “believes,” “expects,” “projects,” “plans,” “intends,” “may,” “should,” “could,” “seeks” and similar expressions, are forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, many of which are beyond our control. These forward-looking statements, and the assumptions upon which they are based, (i) are not guarantees of future results, (ii) are inherently speculative and (iii) are subject to a number of risks and uncertainties. Actual events and results may differ materially from those anticipated, estimated, projected or implied in those statements if one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect. Factors that could affect actual results include but are not limited to: the ability of the parties to timely and successfully receive the required approvals for the combination from regulatory agencies free of conditions materially adverse to the parties; the possibility that the anticipated benefits from the proposed transaction cannot be fully realized or may take longer to realize than expected; the possibility that costs, difficulties or disruptions related to the integration of Level 3’s operations with those of CenturyLink will be greater than expected; the ability of the combined company to retain and hire key personnel; the effects of competition from a wide variety of competitive providers, including lower demand for CenturyLink’s legacy offerings; the effects of new, emerging or competing technologies, including those that could make the combined company’s products less desirable or obsolete; the effects of ongoing changes in the regulation of the communications industry, including the outcome of regulatory or judicial proceedings relating to intercarrier compensation, interconnection obligations, access charges, universal service, broadband deployment, data protection and net neutrality; adverse changes in CenturyLink’s or the combined company’s access to credit markets on favorable terms, whether caused by changes in its financial position, lower debt credit ratings, unstable markets or otherwise; the combined company’s ability to effectively adjust to changes in the communications industry, and changes in the composition of its markets and product mix; possible changes in the demand for, or pricing of, the combined company’s products and services, including the combined company’s ability to effectively respond to increased demand for high-speed broadband service; changes in the operating plans, capital allocation plans or corporate strategies of the combined company, whether based on changes in market conditions, changes in the cash flows or financial position of the combined company, or otherwise; the combined company’s ability to successfully maintain the quality and profitability of its existing product and service offerings and to introduce new offerings on a timely and cost-effective basis; the adverse impact on the combined company’s business and network from possible equipment failures, service outages, security breaches or similar events impacting its network; the combined company’s ability to maintain favorable relations with key business partners, suppliers, vendors, landlords and financial institutions; the ability of the combined company to utilize net operating losses in amounts projected; changes in the future cash requirements of the combined company; and other risk factors and cautionary statements as detailed from time to time in each of CenturyLink’s and Level 3’s reports filed with the U.S. Securities and Exchange Commission (the “SEC”). Due to these risks and uncertainties, there can be no assurance that the proposed combination or any other transaction described above will in fact be completed in the manner described or at all. You should be aware that new factors may emerge from time to time and it is not possible for us to identify all such factors nor can we predict the impact of each such factor on the proposed combination or the combined company. You should not place undue reliance on these forward‑looking statements, which speak only as of the date of this communication. Unless legally required, CenturyLink and Level 3 undertake no obligation and each expressly disclaim any such obligation, to update publicly any forward-looking statements, whether as a result of new information, future events, changed events or otherwise.
In connection with the proposed combination, CenturyLink filed a registration statement on Form S-4 with the SEC (Registration Statement No. 333-215121) which was declared effective by the SEC on February 13, 2017. CenturyLink and Level 3 have filed a joint proxy statement/prospectus and will file other relevant documents concerning the proposed transaction with the SEC. CenturyLink and Level 3 began mailing the definitive joint proxy statement/prospectus to their respective security holders on or about February 13, 2017. The definitive joint proxy statement/prospectus, dated as of February 13, 2017, contains important information about CenturyLink, Level 3, the proposed combination and related matters. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED COMBINATION OR INCORPORATED BY REFERENCE IN THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY BECAUSE THEY CONTAIN IMPORTANT INFORMATION. Investors and security holders may obtain the definitive joint proxy statement/prospectus and the filings that are incorporated by reference in the definitive joint proxy statement/prospectus, as well as other filings containing information about CenturyLink and Level 3, free of charge, at the website maintained by the SEC at www.sec.gov. Investors and security holders may also obtain these documents free of charge by directing a request to CenturyLink, 100 CenturyLink Drive, Monroe, Louisiana 71203, Attention: Corporate Secretary, or to Level 3, 1025 Eldorado Boulevard, Broomfield, Colorado 80021, Attention: Investor Relations.
Value To You
With this combination, we expect to be positioned as a stronger competitor in the marketplace, enhance value for customers and drive growth. This combination will:
- Enhance our ability to deliver industry-leading capabilities and services over a global, world-class platform.
- Enable enterprises to solve the growing demand for bandwidth, manage increasing complexity in communications and control the escalating threat environment.
- Allow us to meet customers’ needs more effectively, through an enhanced network footprint and broader, more complementary range of services and solutions.
- Provide an opportunity to further invest in broadband access for customers across platforms, enhancing broadband speed, enabling OTT video and changing the way customers interact with technology.
- Build an enhanced customer experience, bringing technologies and capabilities to our customers more efficiently.
Together, we will remain committed to strengthening and improving our communities:
- The companies expect to leverage the charitable legacies of both companies to have an even greater impact on our communities.
- Both companies have charitable histories.
- CenturyLink provides financial, technological and volunteer resources to support its communities. The CenturyLink Clarke M. Williams Foundation funds several programs that support these efforts. CenturyLink’s Teachers and Technology Grants provide more than $1 million annually in classroom grants to help teachers in our local operating markets implement technology in their classrooms. CenturyLink offers Matching Time Grants and a match on its annual Employee Giving Campaign. In addition, CenturyLink’s annual Backpack Buddies Food Drive helps raise funds and awareness to fight hunger in communities. Since its start in 2009, CenturyLink’s employees, community members and $1 million annual Foundation match have provided the equivalent of more than 50 million pounds of food to food banks across the country.
- Level 3 has provided more than $1 million of support to the communities where its employees live and work. Furthermore, Level 3 has engaged thousands of employees globally in volunteer activities, logging more than 13,000 volunteer hours in 2015. To supplement Level 3 Volunteers, the Level 3 Gives program provides funding to assist local community programs. Level 3 encourages employees to give in times of need through its matching program with the Red Cross for disaster relief initiatives. Additionally, Level 3 established the Level 3 Foundation in June 2015. The Foundation, a 501(c)(3) public charity, provides employees and community members the opportunity to share in Level 3’s commitment to giving back through financial contributions that support the philanthropic needs of their communities.
This transaction is a natural fit for our two companies. Both CenturyLink and Level 3 have strong track records of integrating companies. Our experience positions us well to:
- Combine two customer-focused organizations.
- Unify our organization under a set of principles that serve as the foundation of how we conduct our business and support each other.
- Drive workforce training for the future and potentially create jobs in the technology sector.
- Provide additional growth and advancement opportunities for our employees.
- Take advantage of our geographic diversity to engage a range of talented employees, and better serve our customers, by maintaining our corporate headquarters in Monroe, Louisana while keeping a significant presence in Colorado and the Denver metropolitan area.
Clear benefits to CenturyLink and Level 3 shareholders:
- Strong Financial Profile: The combined company is expected to have improved adjusted EBITDA margins, revenue growth and pro forma net leverage of less than 3.7x at close, including run-rate synergies. The combined company will benefit from Level 3’s nearly $10 billion of net operating losses (“NOLs”). These NOLs will substantially reduce the combined company’s net cash tax expense over the next several years, positioning it to generate substantial free cash flow.
- Improved Dividend Coverage: The improved free cash flow will enhance the combined company’s financial flexibility and significantly lower its payout ratio. CenturyLink expects to maintain its annual dividend of $2.16 per share.
- Significantly Accretive to Free Cash Flow with Multiple Opportunities for Growth: CenturyLink expects the transaction to be accretive to free cash flow in the first full year following the close of the transaction and significantly accretive on an annual run-rate basis thereafter.
- Substantial Run-Rate Synergies: Both companies have proven ability to integrate and meet or exceed synergy targets. The increased scale afforded by the combined company is expected to generate $975 million of annual run-rate cash synergies, primarily from systems consolidation, increased operational and capital efficiencies and the elimination of duplicative functions.