Lumen Technologies struck a deal to sell its Latin America business to infrastructure investment firm Stonepeak for $2.7 billion in a move to free up more cash for its growth ambitions.
The operator noted in a press release the sale price represents approximately nine times the Latin America unit's 2020 estimated adjusted EBITDA. The deal is expected to close in the first half of 2022.
Jeff Storey, Lumen President and CEO, said in a statement the transaction will allow the company to “focus investments in key areas of the business to drive future growth while providing flexibility for our capital allocation strategy.”
Of the company's forward-looking priorities, Lumen president of global customer success Laurinda Pang told Fierce “we are investing globally to continue enhancing our assets and capabilities and recently announced network expansions in France, Spain and Switzerland. Lumen’s global value proposition remains unchanged: We will continue to meet our customers’ application and data needs where they operate in the world and our future investments will reflect that commitment.”
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Through the sale, Lumen’s Latin America division will become an independent subsidiary of Stonepeak, maintaining its current leadership team with Hector Alonso at the helm as president. Alonso stated the deal will provide the new company with “more autonomy to serve its customers and the enhanced ability to react to and invest in changing market conditions in the Latin America region.”
However, Lumen isn’t severing ties completely – the operator said it plans to “retain a strategic relationship” with the new company. That relationship will comprise reciprocal reselling and network arrangements which allow the new entity and Lumen to tap into each other’s fiber, data center and other network assets to serve customers in the region.
Pang told Fierce the company decided to sell the Latin America unit after determining it “was not critical to our overall growth strategy." She noted it had conversations with “multiple parties” before settling on the deal with Stonepeak.
Though analysts at Raymond James said the agreement was “not the deal we were expecting” they concluded “this is a good transaction for Lumen despite giving away some value.”
“The deal should provide additional capital for de-levering, reinvesting in growth areas and potentially share repurchases down the line,” they wrote. The analysts added “the LatAm assets are valuable in that there are relatively few cables and other assets to the region, giving the potential for players to get a strong foothold.”
Indeed, it seems that’s exactly what drew Stonepeak’s eye, with the investment firm noting the deal will net it “an extensive subsea, terrestrial fiber and data center footprint.” Andrew Thomas, Stonepeak Managing Director, said it will work to “expand the network across the entire region and position the platform for continued long-term growth."
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Analysts at Cowen argued the sale “doesn’t do much to ‘move the needle’” for Lumen, but highlighted the transaction as “the first notable and executed proof point around mgmt’s desire to sell non-core assets.” They flagged it as a “potential sign of more to come,” which could include a sale of “its mass market business, or more specifically a partial sale of DSL homes.”
Wells Fargo Securities analysts similarly viewed the sale as evidence of Lumen’s leadership sticking “to its playbook of monetizing assets it views as non-core.” Referencing recent speculation about another potential divestiture, they added “the next question is whether LUMN also elects to carve out a portion of its consumer footprint to Apollo, as recently reported by Bloomberg - which would help shed a portion of its portfolio that has dragged down revenue growth.”