BANGALORE (Reuters) - Loss-making Internet content delivery company Level 3 Communications Inc plans to buy smaller rival Global Crossing Ltd for about $1.9 billion in stock as it tries to take on market leader Akamai Technologies Inc.
Level 3, Akamai and Limelight Networks Inc compete to provide the network backbone for companies such as Netflix Inc and Apple Inc to stream music and video.
The deal will help Level 3 expand into Latin America and Europe and will generate savings about $2.5 billion a year, Level 3 said on a conference call.
Most of the savings will come from North America and Europe, Level 3 said, adding there is a modest overlap in the companies' Latin America and the UK operations.
The combination will eliminate redundant network operating and capital expenses, it said.
The deal will help Level 3 become a more agile company and make its more significant competitor to Akamai, said Benny Lorenzo, CEO of Kaufman Brothers, a New York-based telecommunications boutique investment bank and research firm.
It also will help consolidate a market that has been fragmented from a pricing point of view, Lorenzo said.
Level 3 is loaded with debt from building its network over a decade ago and squeezed by falling prices.
"I think this is more of synergies overseas where both of the companies have spent a lot of money building their network and have extra capacity, and now pulling the companies together makes a lot of sense," analyst Robert Wasserman at Dawson James Securities said.
Global Crossing shareholders will receive 16 shares of Level 3 common stock for each share held, valuing Global Crossing at $23.04 a share, or a premium of 56 percent to the stock's close Friday on Nasdaq.
Level 3 will also assume $1.1 billion of Global Crossing's debt, bringing the total deal value to about $3 billion.
The company will incur integration costs of $200-$225 million and expects the deal to add to free cash flow in 2013.
Bank of America Merrill Lynch, Citi and Morgan Stanley advised Level 3 on the deal.
Analysts on average were expecting Level to report a loss of 37 cents a share for 2011, excluding items, and Global Crossing a loss of $2.46 a share, according to Thomson Reuters I/B/E/S.
Shares of Global Crossing soared 79 percent to a four-year high of $26.50, making it the second-biggest gainer on Nasdaq. Nearly 8.5 million shares changed hands by 1135 ET -- 40 times their normal volume.
Shares of Broomfield, Colorado-based Level 3 jumped 28 percent to a near-2- year high of $1.84 in on Nasdaq, with more than 240 million shares traded - 17 times normal volume.
Reporting by Sayantani Ghosh and Supantha Mukherjee in Bangalore; Editing by Gopakumar Warrier, Unnikrishnan Nair