Lumen Technologies (LUMN) inked a $2.7 billion deal to divest its Latin American (LatAm) business to Stonepeak, an alternative investment firm with approximately $37 billion of assets under management. Shares of Lumen jumped 2.3% on the news, closing at $12.92 on July 26.
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Lumen Technologies offers communications, network services, security, cloud solutions, voice, and managed services. Following the divestiture, the company will continue to serve its customers in the North America, EMEA, and APAC regions, as well as in the LatAm region under a strategic arrangement. (See Lumen Technologies stock charts on TipRanks)
The acquisition of the LatAm business will enable Stonepeak to establish itself in a Latin American communications platform with an extensive subsea, terrestrial fiber, and data center footprint.
The New LATAM business will operate as a standalone, U.S. headquartered portfolio company of Stonepeak, with its current leadership team in place.
The deal is expected to close in the first half of 2022, subject to certain regulatory and customary closing conditions.
Jeff Storey, Lumen’s President, and CEO said, “This transaction allows Lumen to focus investments in key areas of the business to drive future growth while providing flexibility for our capital allocation strategy.”
Lumen stands to benefit from the transaction, owing to the attractive valuation of the LatAm business at nine times its 2020 estimated adjusted EBITDA, and provides the company excess cash to reduce debt and execute share buybacks.
Under the new arrangement, both companies will include reciprocal reselling and network arrangements that leverage each other’s extensive fiber footprints, data centers, and other network assets to serve customers in the region.
Following the news of the sale, Oppenheimer analyst Timothy Horan maintained a Hold rating on the stock.
Horan believes that the Latin American business is a growing asset and that the sale will potentially reduce the company’s organic revenue growth going forward.
However, the analyst states that LUMN will most likely reduce its debt by utilizing two-thirds of the sale proceeds, while the remainder may be used towards either share buybacks or capital expenditures, which according to him is a “good step in the right direction.”
Overall, Lumen has a Hold consensus rating based on 1 Buy, 4 Holds, and 3 Sells. The average Lumen Technologies price target of $11.67 implies 9.7% downside potential to current levels. Shares have gained 33.2% over the past year.
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