RealTime IT News

Another Software Company for Level 3

Level 3 Communications Inc. , officials announced Thursday the $122 million purchase of Software Spectrum Inc., pending shareholder approval.

The Level 3 buyout comes just a couple months after it finished the acquisition and integration of another software distribution company, Corporate Software. The two companies, along with (i)Structure, will provide back office services to Level 3's large customer base -- as well as its own clientele.

In a sweetheart deal for shareholders (who might have been nervous about attaching their hopes and stock success to a carrier post-Global Crossings), Level 3 is buying out the company at $37 a share. That's more than double the software company's stock value after the market closed Wednesday night.

Software Spectrum's value climbed 118 percent in Thursday trading to $36.27 on the announcement. The board of directors on both sides approved the merger, and many shareholders have already promised to vote in favor of the proposal, which should become effective in the third quarter of 2002.

James Crowe, Level 3 chief executive officer, said the merger is part of his company's strategy to expand past the strictly bandwidth-centric role of a communications carrier.

"Over the past few months Level 3 has moved to significantly expand its information services business," he said. "We are doing so in order to take advantage of important economic and technology trends, including the continuing convergence of the broadband and software distribution industries. "The agreement announced today is a key part of that effort."

Two years ago, Level 3 and many of the other "carrier's carriers" in the U.S. were forced to look at their business operations in wake of the telecom meltdown that shut down many online businesses and service providers.

Seeing his company's value plummet on Wall Street, Crowe knew the only way to accomplish a turnaround was to expand the services Level 3 provided, from a pure-play bandwidth provider to one that provided infrastructure to go along with the network backbone.

That meant buying up companies like Corporate Software and Software Spectrum, companies that could deliver solutions that many Level 3 customers would rather outsource.

According to Crowe, today's businesses have to find the best value to return a profit, resulting in the need for low-cost computing, storage and communications. Providing services in-house can be an expensive proposition, he said, given the rapid change and improvements in technology. The solution: Level 3's all-in-one package.

Though the initial investment (acquisitions) will be expensive, Crowe feels the end result will be a stronger communications provider.

"Over time, improvements in communications technology will continue to drive down the price of moving information and allow businesses to buy software functionality and data storage as a commercial service accessed remotely over broadband networks," he said. "We believe Level 3's acquisition of both Software Spectrum and Corporate Software will enable us to capitalize on this long term trend."