LVLT - Level 3

[Guest ValueCarl]

In the final analysis, the value of any network on PLANET EARTH, are its END to END connections! Once you're connected anywhere and everywhere ubiquitously, copious cash will never stop flowing to your enterprise.

 

Post new share issuance and synergies tied to ebitda multiples, on top of (3)'s position in the marketplace, the stock is easily worth $3.60. If they actually SELL, SELL, SELL, well beyond the GLBC book they just bought, we'll go much higher from a larger revenue base assuming they get to the double digit top line growth we have waited many years to witness.  

 

Brker_guy, us watching that snake charmer, Legere, copy catting (3)'s business model all along was also a clue. I wonder if El Gordo down in Sud America is mad about this?  ;D    

[txlaw]

This is a beautiful deal. :)

 

By the way, the largest owner of GLBC is ST Telemedia, aka Temasek (the Singaporean sovereign wealth fund).  These guys are long term investors. 

 

And remember that announcement about Tata announcing an IaaS service in Singapore? 

 

These Singaporeans get it.

[txlaw]

Maybe a dumb question...and I haven't had time to read much into this, but how are they spending $3 Billion in stock when their market cap is less than $3 Billion? This company seems to spend money like it's going out of style and makes no profit; outside of being of potential takeover target, I still have a hard time understanding what you guys like about this company. Seems like we're back to the days where nobody seems to think making an actual profit matters anymore in this momentum-driven market.

 

Your question isn't dumb.  Your comment about the market reaction being momentum-driven is dumb.

 

Perhaps you should do some research before you comment.

[Guest ValueCarl]

Txlaw, I think I said something dumb, too, or by relying on Bloomberg's misleading comment on the EBITDA multiple that (3) paid being 3.6 times whilst excluding DEBT and CASH, was DUMB for not doing my own homework. As a matter of fact, I don't know where these Bloomberg NUMB NUTS calculated this number from based upon Global's EBITDA being purchased!

 

<Since April 2008, nine acquirers paid a median 5.8 times their target’s earnings before interest, taxes, depreciation and amortization, compared with 3.6 times for Level 3, the data show.>

 

Back of the envelope numbers are a bit higher, but still significantly less than the EBITDA multiple (3) is afforded in the marketplace as a result of being the "EMERGING LEADER!"

 

At $1.9B in stock and $1.1B in debt less $381MM in CASH on Global's books, while using $400MM in EBITDA already banked, (3) is paying a 6.55 EBITDA MULTIPLE prior to synergies!

 

Without a doubt, while excluding "synergies" (3) must sell, sell, sell that TOP LINE in DOUBLE DIGITS now that a competitor has been removed from the MIX at the same time being afforded a more liberal multiple of EIGHT something for being the leader moving ahead.  

 

Not as cheap as I would have wished. I hope BIG PREM is happy though!  ;D Because if he is happy, we're going to go to the (3) BANK together!  

 

<As of December 31, 2010, Global Crossing had $372 million of unrestricted cash, compared with $311 million at September 30, 2010 and $477 million at December 31, 2009.  Including $9 million of restricted cash, Global Crossing had total cash of $381 million at December 31, 2010.  >

 

http://finance.yahoo.com/news/Global-Crossing-Announces-prnews-379369647.html?x=0&.v=1

 

 

[DCG]

Maybe a dumb question...and I haven't had time to read much into this, but how are they spending $3 Billion in stock when their market cap is less than $3 Billion? This company seems to spend money like it's going out of style and makes no profit; outside of being of potential takeover target, I still have a hard time understanding what you guys like about this company. Seems like we're back to the days where nobody seems to think making an actual profit matters anymore in this momentum-driven market.

 

Your question isn't dumb.  Your comment about the market reaction being momentum-driven is dumb.

 

Perhaps you should do some research before you comment.

 

I'm not referring to the move today. I'm referring to the fact that the stock has gone up around 80% (at prices earlier today) in the last couple months, while they continue to burn mountains of cash at an unsustainable rate and have yet to make one penny of profit. It has been a move rooted in momentum speculation.

 

And i was referring to the market being heavily momentum driven right now, and not specifically just lvlt. Lots of companies making no money are seeing high market valuations right now.

 

Anyway, I guess I'm dumb for thinking for lvlt to pay off their huge chunk of debt (and stop accumulating more), it would be slightly helpful if they could figure out how to actually make more profit than the guy that probably stands outside their corporate office selling hot dogs.

[txlaw]

Maybe a dumb question...and I haven't had time to read much into this, but how are they spending $3 Billion in stock when their market cap is less than $3 Billion? This company seems to spend money like it's going out of style and makes no profit; outside of being of potential takeover target, I still have a hard time understanding what you guys like about this company. Seems like we're back to the days where nobody seems to think making an actual profit matters anymore in this momentum-driven market.

 

Your question isn't dumb.  Your comment about the market reaction being momentum-driven is dumb.

 

Perhaps you should do some research before you comment.

 

I'm not referring to the move today. I'm referring to the fact that the stock has gone up around 80% (at prices earlier today) in the last couple months, while they continue to burn mountains of cash at an unsustainable rate and have yet to make one penny of profit. It has been a move rooted in momentum speculation.

 

Wrong.  You haven't done your homework.

 

Simple as that. 

[txlaw]

Txlaw, I think I said something dumb, too, or by relying on Bloomberg's misleading comment on the EBITDA multiple that (3) paid being 3.6 times whilst excluding DEBT and CASH, was DUMB for not doing my own homework. As a matter of fact, I don't know where these Bloomberg NUMB NUTS calculated this number from based upon Global's EBITDA being purchased!

 

<Since April 2008, nine acquirers paid a median 5.8 times their target’s earnings before interest, taxes, depreciation and amortization, compared with 3.6 times for Level 3, the data show.>

 

Back of the envelope numbers are a bit higher, but still significantly less than the EBITDA multiple (3) is afforded in the marketplace as a result of being the "EMERGING LEADER!"

 

At $1.9B in stock and $1.1B in debt less $381MM in CASH on Global's books, while using $400MM in EBITDA already banked, (3) is paying a 6.55 EBITDA MULTIPLE prior to synergies!

 

Without a doubt, while excluding "synergies" (3) must sell, sell, sell that TOP LINE in DOUBLE DIGITS now that a competitor has been removed from the MIX at the same time being afforded a more liberal multiple of EIGHT something for being the leader moving ahead.  

 

Not as cheap as I would have wished. I hope BIG PREM is happy though!  ;D Because if he is happy, we're going to go to the (3) BANK together!  

 

<As of December 31, 2010, Global Crossing had $372 million of unrestricted cash, compared with $311 million at September 30, 2010 and $477 million at December 31, 2009.  Including $9 million of restricted cash, Global Crossing had total cash of $381 million at December 31, 2010.  >

 

http://finance.yahoo.com/news/Global-Crossing-Announces-prnews-379369647.html?x=0&.v=1

 

 

What I love to see is that "Debt to Adjusted EBITDA Ratio" going from 7.56 to 6.21 -- and to 5.03 with synergies. ;D

[brker_guy]

TxLaw, we have a LVLT non-believer amongst us, but that's okay.  It's a free country(or countries in this case).  

 

Mr. DCG likes to see

profits

before he buys anything.  May be he hasn't read Warren's latest letter on companies

reported profits

[Guest ValueCarl]

Ah, Txlaw! You are the man today!  ;) Jim Crowe is knocking at the door of his 3-5 times DEBT/EBITDA ratio!

 

7.6B/1.5B post SYNERGIES!

 

<What I love to see is that "Debt to Adjusted EBITDA Ratio" going from 7.56 to 6.21 -- and to 5.03 with synergies.>

[Guest ValueCarl]

It looks like my "WITHHOLD VOTES" on all directors is going to bode well moving ahead. It was truly a "no confidence" vote to jar that entrenched board's heads at that snapshot in time.

 

My back of the envelope calculation tells me that Singapore Technologies is going to represent approx. 20 percent of the new board based upon their 60 percent stake in what will end up becoming a nearly 33 percent of fully diluted share count. (1.36B@ 60 percent ownership deal share count/3.960B authorized and fully diluted afterwards=20.61 percent representation).

 

I have just started listening to the conference, and nobody has asked what this new "ADDRESSABLE MARKET" is that they're now attacking! I heard Crowe YAKKING but not QUANTIFYING!  Are we in THE TRILLIONS yet?

 

It appears the $6B NOL's are now more valuable too, considering the timeline to profits has been moved up, yet there may not be many more NOL's coming from Global after this transaction is finished.  

 

 

<The deal also involves the participation of Singapore Technologies Telemedia, which owns a 60% stake in Global Crossing (GLBC:$23.211,0$8.411,056.83%) . After the deal closes, ST Telemedia will get to nominate members to the Level 3 board of directors relative to the size of their stock ownership in the company.>    

[Guest ValueCarl]

I used to hear how Jim Crowe was getting schooled in the Kiewit Tower by Mr. Warren E. Buffett. I have now concluded that, Mr. Crowe is spending more time with Mr. Munger these days, as he LEARNS how to do business with ASIANS!  ;D

 

I have a couple of VIP's visiting Omaha this weekend including today! I should have them stop in the Kiewit Tower and thank Mr. Scott for this, "Next acquisition, please!"  ;D

[Guest ValueCarl]

It's a good thing this finally happened because, my earlier message to Mr. Scott from my VIP heading up the Tower was, "Mr. Scott, my family wants to be happy again, what should we do with our shares?"  >:(

 

This is a spin off of his earlier 2005 ASM remark and comment, "Hold onto your shares; you'll be happy." imo 

[Guest ValueCarl]

Oh my, I have been knocked off of my seat with respect to the underlying mechanics surrounding this deal today! 

 

Fi, Fi, Fo, Fum, I do smell the blood of a Buffett Man in these rights to preferred shares and the $1.75B financing commitment (3) had garnered for doing the deal!

 

Fwiw, a space at the table was just made for The Oracle!  ;D Where do we go from here? Brker_guy, call all NON BELIEVERS to the WOOD SHED, and turn on the wood chipping machine! 

 

 

http://files.shareholder.com/downloads/LVLT/1220819024x0x457880/cdb697f7-5362-4481-8ecd-b9883de07b15/Level%203%20Communications_Global%20Crossing%20Announcement_Presentation_2011-04-11.pdf

 

 

 

 

      General.    Under the Rights Agreement, from and after the record date of April 21, 2011, each share of Common Stock will carry with it one preferred share purchase right (a "Right") until the Distribution Date (as defined below) or earlier expiration of the Rights, as described below.

 

 

http://www.sec.gov/Archives/edgar/data/794323/000104746911003482/a2203379z8-a12b.htm

[DCG]

I admittedly have a hard time fully understanding this company, buy you guys are not at all concerned that they may never become profitable and never be able to pay off their mountains of debt? The fancy PowerPoint presentation with them using the word 'synergy' at least once per sentence is great and all, but will they ever make money?

 

I think these questions might sound random if this was a company founded 2 years ago, but this company has been around for nearly 30 years and loses money pretty much every year, and has had lots of problems in the past due to this.

 

I understand there is significant value to their tangible assets, but this company has a long history of blowing through much more cash than they take in every year. Seems like a tough business model.

[brker_guy]

"I admittedly have a hard time fully understanding this company, buy you guys are not at all concerned that they may never become profitable and never be able to pay off their mountains of debt? The fancy PowerPoint presentation with them using the word 'synergy' at least once per sentence is great and all, but will they ever make money?"

 

DCG, this is just getting a little too comical now!  I just can't stop laughing at the humor.  Seriously, words of advice!  Please go read Buffett's letter this year, and please pay very careful attention to page 20 and 21.  This will do you some good.

 

http://www.berkshirehathaway.com/letters/2010ltr.pdf

 

 

"this company has been around for nearly 30 years and loses money pretty much every year, and has had lots of problems in the past due to this."

 

As a matter fact, here is the latest annual report from LVLT:

 

http://files.shareholder.com/downloads/LVLT/882226361x0x457760/8BA2D7DD-415D-4257-8613-83809B713C42/2010_Annual_Report-Proxy.pdf

 

And here:

 

http://lvlt.client.shareholder.com/secfiling.cfm?filingID=1047469-11-1410 

 

Start wit Page 24 of the 10K and start your reading assignment.  ;D :D

 

 

[tombgrt]

In Buffett's 1985 letter he also said :

 

"We also made a major acquisition, Waumbec Mills, with the expectation of major synergy (a term widely used in business to explain an acquisition that otherwise makes no sense)."

 

 

Just playing the devil's advocate here.

;D

 

[brker_guy]

"I used to hear how Jim Crowe was getting schooled in the Kiewit Tower by Mr. Warren E. Buffett. I have now concluded that, Mr. Crowe is spending more time with Mr. Munger these days, as he LEARNS how to do business with ASIANS!"

 

Carl, Mr. Crowe(He is getting his prefix back today  ;D) has said it in the last CC he was at that if you are in business, and that if you don't know how to do business with the Chinese, you are hosed.  Well, guess what?  ST Telemedia which is owned by ST Technologies based in Singapore.  Singapore which is 80% Chinese will surely help Mr. Crowe on how to turn into Chinese, think like Chinese and do business with the Chinese, and mind you, Singaporeans are one shrewd Chinese ethnic group when it comes to business!  

 

So, Mr. Crowe, here is to you for the day!  Nice job!  Now, please don't stumble on the integration on GLBC like the last 7 other acquisitions.  We want to see $2-$3 soon. :)

[DCG]

"I admittedly have a hard time fully understanding this company, buy you guys are not at all concerned that they may never become profitable and never be able to pay off their mountains of debt? The fancy PowerPoint presentation with them using the word 'synergy' at least once per sentence is great and all, but will they ever make money?"

 

DCG, this is just getting a little too comical now!  I just can't stop laughing at the humor.  Seriously, words of advice!  Please go read Buffett's letter this year, and please pay very careful attention to page 20 and 21.  This will do you some good.

 

http://www.berkshirehathaway.com/letters/2010ltr.pdf

 

 

"this company has been around for nearly 30 years and loses money pretty much every year, and has had lots of problems in the past due to this."

 

As a matter fact, here is the latest annual report from LVLT:

 

http://files.shareholder.com/downloads/LVLT/882226361x0x457760/8BA2D7DD-415D-4257-8613-83809B713C42/2010_Annual_Report-Proxy.pdf

 

And here:

 

http://lvlt.client.shareholder.com/secfiling.cfm?filingID=1047469-11-1410  

 

Start wit Page 24 of the 10K and start your reading assignment.  ;D :D

 

 

 

I read that info. They are convincing that they are in a good position and built the company up for the current and future environments (and I dont disagree with that), and it looks like most of their debt is long-term, but seem to dodge the area of making money. Can anyone explain to me in a sentence or two how they will consistently make a profit some day, or at least become consistenty cash-flow positive after capex?

 

And I don't really see Buffett's point on realized gains and losses from their equity investments being that related to LVLT's business. That should be obvious for Berskshire's business model. Please clarify how that applies to LVLT's business model.

[Guest ValueCarl]

It may be better for men or women like DCG to read about the LVLT story after it makes the FINANCE BOOKS in the mature phase of its business plan with everyone marveling over it.

 

At that time, they can then wish, hope, and look for the next SUPER  NOVA play/industry that only comes around once every hundred years or so! :-)

 

Truth be known, us "long term investors" who have paid the price and endured the test of time might much rather see this move up the price line quickly versus seeing newbies pike an easier money period without any blood, sweat or tears, or is it "SKIN in the GAME!"    

 

 

The stock belongs at $3.60 ASAP! IMO        

[txlaw]

"I admittedly have a hard time fully understanding this company, buy you guys are not at all concerned that they may never become profitable and never be able to pay off their mountains of debt? The fancy PowerPoint presentation with them using the word 'synergy' at least once per sentence is great and all, but will they ever make money?"

 

DCG, this is just getting a little too comical now!  I just can't stop laughing at the humor.  Seriously, words of advice!  Please go read Buffett's letter this year, and please pay very careful attention to page 20 and 21.  This will do you some good.

 

http://www.berkshirehathaway.com/letters/2010ltr.pdf

 

 

"this company has been around for nearly 30 years and loses money pretty much every year, and has had lots of problems in the past due to this."

 

As a matter fact, here is the latest annual report from LVLT:

 

http://files.shareholder.com/downloads/LVLT/882226361x0x457760/8BA2D7DD-415D-4257-8613-83809B713C42/2010_Annual_Report-Proxy.pdf

 

And here:

 

http://lvlt.client.shareholder.com/secfiling.cfm?filingID=1047469-11-1410  

 

Start wit Page 24 of the 10K and start your reading assignment.  ;D :D

 

 

 

I read that info. They are convincing that they are in a good position and built the company up for the current and future environments (and I dont disagree with that), and it looks like most of their debt is long-term, but seem to dodge the area of making money. Can anyone explain to me in a sentence or two how they will consistently make a profit some day, or at least become consistenty cash-flow positive after capex?

 

And I don't really see Buffett's point on realized gains and losses from their equity investments being that related to LVLT's business. That should be obvious for Berskshire's business model. Please clarify how that applies to LVLT's business model.

 

DCG, the key to understanding LVLT is distinguishing between reported earnings and "owner earnings," the concept which every Graham and Dodd or Buffett and Munger investor should be intimately familiar with. 

 

If you do your homework -- reading annual reports, reading/listening to CCs, reading presentations, and thinking deeply about how the business works -- you will get a better understanding of the future prospects of the company, as well as of the profits the biz generates (or does not generate).

 

You should also think a bit more about what sorts of returns LVLT generates on capital invested into the biz and about why this is being described as a deleveraging transaction. 

 

[DCG]

It may be better for men or women like DCG to read about the LVLT story after it makes the FINANCE BOOKS in the mature phase of its business plan with everyone marveling over it.

 

 

I know you're saying this tongue in cheek, but part of my point is that people have been saying this type of thing about this company for years, and people have had a 'it's different this time' approach about them for a while as well.

[Guest ValueCarl]

It still may be although if there was one acquisition that should put (3) in the drivers seat not looking back, this should be it! The concept you are alluding to is what makes a MARATHON RACE!!!!!

 

Place your bets over time!!!!!!!!!!!!!!!!!

 

All aboard the (3) Gravy Train, and watch those "PREFERRED" shares via "RIGHTS" too!  ;D

 

Brker_guy, you caught me! Mr. Crowe will only garner my respect by performing commensurate with his lofty words, so until he proves it with this acquisition, he's back to Jimbo, or Big Jim, or Crowe Blow!  ;D I want the results that all decent shareholders deserve from a management team that has been warrantying them over many, many, years, i.e. "The Opportunity!"  

 

One other thing, BG, I did hear Big Jim talking Mandarin at his last conference call when he said, "we're not going to overpay!," as well.  ;D

[Guest ValueCarl]

S&P likes it. It will become a perpetual refinancing story of credit upgrades and lower priced money in the marketplace. The capital intensity will not go away-it costs a hell of a lot of money to make an "end to end" connected network everywhere-but the price of money will wither down as we carry on.

 

http://www.reuters.com/article/2011/04/11/markets-ratings-level-idUSWNA594320110411

[bluedevil]

Can anyone explain to me in a sentence or two how they will consistently make a profit some day, or at least become consistenty cash-flow positive after capex?

 

DCG,

 

I think you have to look at LVLT this way.  You are paying something like $8-9 billion dollars for a pipeline worth $30-35 billion.  If you can fill that pipeline up with traffic before the next major refi (in 3 years), your company will gush torrents of free cash flow that will make your purchase at $8 billion seem like a wonderful price.  Especially when that FCF will be shielded from tax by huge prior operating losses.  If it doesn't fill up, then you could have spent $100 billion on your pipeline and it doesn't mean squat -- you are going to lose money and have to keep diluting your SHs to buy time on your debt.  So, the relevant question is not LVLT's past performance based on unfilled pipelines, but whether they can fill up their pipeline going forward and do so in a reasonable time frame.  If the pipelines fill up -- the profits will definitely come.  In fact, new revenue gets translated to profits at something like 60%.  But, of course, the key word is "if".  That is the only reason why you can buy a $30-35 billion dollar pipeline today for a fraction of that cost.

[Myth465]

Can anyone explain to me in a sentence or two how they will consistently make a profit some day, or at least become consistenty cash-flow positive after capex?

 

DCG,

 

I think you have to look at LVLT this way.  You are paying something like $8-9 billion dollars for a pipeline worth $30-35 billion.  If you can fill that pipeline up with traffic before the next major refi (in 3 years), your company will gush torrents of free cash flow that will make your purchase at $8 billion seem like a wonderful price.  Especially when that FCF will be shielded from tax by huge prior operating losses.  If it doesn't fill up, then you could have spent $100 billion on your pipeline and it doesn't mean squat -- you are going to lose money and have to keep diluting your SHs to buy time on your debt.  So, the relevant question is not LVLT's past performance based on unfilled pipelines, but whether they can fill up their pipeline going forward and do so in a reasonable time frame.  If the pipelines fill up -- the profits will definitely come.  In fact, new revenue gets translated to profits at something like 60%.  But, of course, the key word is "if".  That is the only reason why you can buy a $30-35 billion dollar pipeline today for a fraction of that cost.

 

This is the most clear and concise post in this thread to date.

 

With that said this sucks. I miss $1. Congrats guys. Still under $2 which is my breaking point. I hope they drift back down. On the surface and having only reviewed the PPT, I like this deal. Consolidation is what this industry needs. How many key players are left? Whats Level 3's market share after this?