Just days before a new CEO is set to take the reins of the company, Lumen Technologies inked a $1.8 billion deal to sell its assets in Europe, the Middle East and Africa (EMEA) to London-based Colt Technology Services. The company also announced plans to eliminate its dividend and instead pursue a $1.5 billion share buyback program.
According to an 8-K filing, Lumen’s deal with Colt includes its terrestrial and subsea networks, including transatlantic cables; data centers; and network equipment in the region. Outgoing CEO Jeff Storey said on the company’s Q3 2022 earnings call it also includes Lumen’s commercial contracts there. Lumen will enter into a long-term strategic partnership with Colt which will allow the companies to access each other’s networks to serve enterprise customers, Storey added.
The deal is expected to close as soon as late 2023. Most of Lumen’s employees in the region will join Colt once the transaction closes.
“The EMEA announcement allows Lumen to receive attractive valuations for the assets and operations, focus our investments in our key growth markets and establish excellent partners in the areas where we've divested these businesses,” Storey said. The deal represents a multiple of 11x EBITDA for Lumen’s business in the region.
Its latest deal comes after Lumen closed two other large transactions earlier this year: the $2.7 billion sale of its Latin America business and the $7.5 billion sale of its ILEC assets in 20 states to Apollo Global Management to form a new operator called Brightspeed. According to Storey, though, the EMEA deal is not expected to be as complicated or as expensive on Lumen’s side of things as the previous two agreements.
Alongside the transaction, Lumen announced it is scrapping its dividend and undertaking a $1.5 billion share buyback program. On the call, Storey said this will provide “significant” benefits for its growth plans and balance sheet.
“Our new policy should remove any questions you may have about the capacity to invest in the growth of our business,” he told analysts and investors. He added the company now believes “it is more attractive to retire shares at today's prices than to pay dividends at today's yields.”
Metrics
The announcements came as Lumen posted Q3 results. Consolidated revenue fell 10% year on year to $4.4 billion while net income increased from $544 million to $578 million. The Enterprise segment contributed $2.25 billion in sales, while Wholesale accounted for $904 million in revenue and the Mass Market Segment contributed $1.17 billion.
Within Mass Markets, fiber broadband revenue was up 18% year on year and now represents 18% of overall segment sales in the 16 states it retained following the Apollo deal, CFO Chris Stansbury said.
The company added 210,000 new fiber passings in the quarter, including 195,000 in the retained states. It ended Q3 with 3 million passings and added 31,000 Quantum Fiber customers to reach a total of 813,000 in its remaining 16-state footprint.
Storey said Lumen isn’t yet adding new fiber passings as quickly as it wants to, attributing the slowness to “supply chain constraints, labor shortages, inflationary pressures, and those types of things.” However, he said it is continuing to work through those hurdles.
Stansbury concluded it’s “all hands on deck right now to see what we can do given permitting and labor issues to get as many enablements in the ground as we can, as fast as we can.”