Comcast acquisition of Level 3 unlikely in near term, analysts say

Analysts are dismissing a report that Comcast (NASDAQ: CMCSA) may be looking to acquire Level 3 Communications.

"While we recognize the strategic value Level 3 would bring to Comcast, we do not think an acquisition is likely over the next couple of years," Oppenheimer analyst Tim Horan said in a report. "We believe Comcast is focused on its consumer offerings, mainly figuring out its (online video). We also believe that the company is more likely to focus on its wireless strategy before it would consider making a major acquisition in the enterprises space."

Added Wells Fargo analyst Jennifer M. Fritzsche: "To be clear, we still see Level 3 as more of a near-term buyer than seller."

Benzinga Pro reported Wednesday that Level 3 is in the process of exploring strategic alternatives, phrasing that often implies that company management is considering major M&A transactions such as selling the company or merging with another company. Specifically, the publication noted Level 3 is considering options ranging from an outright sale of the company to a large stock buyback.

Level 3 reps defined the report as "rumors and speculation," while Comcast didn't respond. 

Broomfield, Colo.-based Level 3 provides long-distance, internet and business services. 

Still, a case could be made for a cable company to buy Level 3, Wells Fargo said. 

"We believe a Level 3 merger or purchase could make sense for a telecom carrier looking to deepen its fiber presence both inside and outside of its network," Fritzsche added. "While the two largest wireline carriers — AT&T and Verizon — are more focused on wireless spending and the upcoming spectrum auction, there are other fiber-rich carriers that could boost their competitive positioning by combining with Level 3."

The cable sector, the Wells Fargo report added, "has been very successful targeting small-to-medium business (SMB) customers, although certain cable cos are starting to make in-roads with the large enterprise segment. But the cable companies lack the nationwide footprint and on-net building reach of the incumbents, which inhibits their ability to compete on a large scale. A purchase of Level 3 would allow cable to quickly scale its enterprise offerings by leveraging Level 3's 106,000 intercity fiber route miles and 67,000 metro route miles. Levelcould also help cable in its initiative to push fiber deeper into its plant to provision faster broadband speeds to both residential and enterprise customers."

For more:
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