COMPANY PRESS RELEASE: Level 3 Communications has announced that Reach will acquire Level 3’s Asian business. The agreement covers Level 3’s Asian network operations, assets, liabilities and future financial obligations.
This includes its North Asian cable system (Tiger); capacity on the Japan-US Cable System (JUS); capital and operational expenses related to the Tiger and JUS systems; data centers in Hong Kong and Tokyo; and existing customers on Level 3’s Asian network.
This transaction makes both sound fiscal and strategic sense for Level 3, said James Q. Crowe, Level 3 CEO. Our business in Asia would require significant additional capital investment to get to the point of free cash flow breakeven. With this transaction, we will save approximately $300 million. Given current economic conditions, we believe it is beneficial to focus our efforts in North America and Europe.
Strategically, Asia represents attractive longer term investment opportunities. In this volatile market and economy, however, we must take steps to focus on the immediate opportunities and to leverage our network and management time where the returns on capital are highest – which is in our North American and European markets.
As part of the agreement, the two companies have agreed Level 3 will provide capacity and services to Reach over Level 3’s North American backbone network, and Level 3 will buy capacity and services from Reach in Asia. This will allow Level 3 to continue to service its customer base with capacity needs in Asia and give Reach access to a state-of-the-art, high capacity network in North America and Europe. Additionally, Level 3 will maintain a sales group in Asia to serve its global customers and Asian-based carriers with capacity needs in North America and Europe.
The agreement enables Level 3 to focus on its strategy of serving the 300 largest consumers of bandwidth, said Steve Liddell, president of Level 3’s Asian operations. We have found in the current economic climate that the needs of this core group of customers are significantly greater in North America and Europe. We’ve significantly improved our overall cash flow, ensured our continued ability to provide capacity in Asia to our global customers, and gained a customer on our North American network.
This transaction will further strengthen Level 3’s overall financial position. The company estimates that by virtue of the transaction it will reduce its future funding requirements by approximately $300 million through a combination of reductions in capital expenditures, network and operating expenses, taxes and working capital. These savings are expected to be realized through the point in time when the company reaches free cash flow breakeven. As a result of this transaction, Level 3 expects to recognize a one-time charge of approximately $500 million during the fourth quarter of 2001.