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Coatue Management Exits Its Position in Level 3 Communications

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Coatue Management and Level 3 Communications

In 4Q14, Coatue Management exited its position in Level 3 Communications (LVLT). Coatue sold 3,122,406 shares of Level 3. It represented 1.46% of the fund’s 3Q14 portfolio.

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Level 3 completed its acquisition of tw telecom

Level 3 completed its acquisition of tw telecom on October 31, 2014. tw telecom is a provider of managed services—including business Ethernet, converged and IP VPN (virtual private network) solutions for companies across the globe.

In its press release, the company said that “The transaction is expected to create substantial total annualized synergies of approximately $240 million, with $40 million from annualized capital expenditure savings and approximately $200 million of annualized Adjusted EBITDA savings.”

4Q14 revenue growth driven by Core Network Services

Level 3’s profit for 4Q14 rose to $66 million from $14 million in 4Q13. The EPS (earnings per share) was $0.21—up from $0.06 the previous year. Consolidated total revenue grew to $1.914 billion—compared to $1.602 billion for 4Q13. Revenue increased 7% to $6.777 billion in 2014—compared to 2013. The revenue growth was due to an increase in revenue from the Core Network Services segment. It was also due to the acquisition of tw telecom.

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Expands into hosted or cloud-based video conferencing services

Recently, Level 3 announced the addition of UC&C (unified communications and collaboration) applications to its Cloud Connect solution. It said it started by partnering with Blue Jeans Network—a cloud-based video conferencing service provider.

In a press release, Level 3 said that “According to Frost & Sullivan, hosted/cloud-based video conferencing services are expected to grow to $344.1 million in revenue by 2019 – up from $113.7 million in 2013 – due to their ability to offer significantly lower costs compared to on-premises solutions, ease of deployment and use, and interoperability across endpoints.”

Overview of Level 3 Communications

Level 3 Communications provides secure, managed solutions like fiber and infrastructure solutions, Internet Protocol or IP-based voice and data communications, wide-area Ethernet services, video and content distribution, data center, and cloud-based solutions. It offers local, national, and global communications services to enterprises, government entities, and carrier customers.

Level 3 has 0.38% exposure to the Technology Select Sector SPDR Fund (XLK). Other companies in IP and data services include Verizon (VZ) and AT&T (T). They account for ~9.22% of the ETF. CenturyLink (CTL) is another company in voice, transport, and fiber services. It accounts for 0.49% of the fund. These companies are also part of the iShares US Telecom ETF (IYZ).

The total revenue consists of:

  • Core Network Services revenue from colocation and data center services, transport and fiber, IP and data services, and local and enterprise voice services.
  • Wholesale Voice Services and Other revenue from sales to other long distance voice service carriers, revenue from managed modem and its related intercarrier compensation services, and revenue from the SBC Master Services Agreement.

The next part of this series, we’ll discuss the fund’s position change in SolarCity.

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