Recently, CenturyLink Inc. CTL and Level 3 Communications Inc. LVLT moved a step closer to completing their proposed merger amid overwhelming approval of the shareholders of both companies. About 96.3% of CenturyLink shareholders and more than 81.2% of Level 3 Communications shareholders have approved the deal.

On Nov 2016, the two entities entered into a definitive agreement through which CenturyLink will acquire Level 3 Communications in a cash and stock transaction. Total deal size is approximately $34 billion including debt. The equity value of this deal is approximately $25 billion. Upon the closing of the transaction, CenturyLink’s shareholders will own around 51% and Level 3 Communications’ shareholders will own around 49% of the combined entity.

CenturyLink expects the transaction to be accretive to free cash flow in the first full year following its closure of the deal and significantly so, on an annual run-rate basis thereafter. The combined entity is likely to generate $975 million of annual cash synergies. The deal is anticipated to be closed in the third quarter of 2017, subject to customary regulatory approvals.

Both CenturyLink and Level 3 Communications provide communications services like data, voice and video transmission for large enterprises. Notably, Level 3 Communications is the provider of one of the largest Internet backbone in the world.

However, in recent years, both the companies were struggling to maintain their business momentum after facing severe competitive threats from large telecom operators such as Verizon Communications Inc. VZ, AT&T Inc. T and Comcast Corp. CMCSA. All three latter companies currently carry a Zacks Rank #3 (Hold). You can see  the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

If the proposed merger finally materializes, it will increase CenturyLink's network by 200,000 route miles of fiber including 64,000 route miles in 350 metropolitan areas and 33,000 subsea route miles connecting multiple continents.

CenturyLink's on-net buildings are expected to increase by nearly 75% to approximately 75,000, including 10,000 buildings in Europe, the Middle East and Africa and Latin America. Therefore, a merged CenturyLink and Level 3 Communications will become a formidable challenger to their larger counterparts.

Price Performance of CenturyLink

In the last six months, the stock price of CenturyLink has witnessed a negative growth of 12.18%, underperforming the Zacks categorized U.S National Wireless industry’s positive growth rate of 5.02% in the same time period. The company is currently going through a difficult phase. Management provided a tepid outlook for 2017. This can be largely attributed to persistent pressure on wholesale revenues along with high employee and benefit costs due to severe competitive pressure from larger peers. We believe these are the primary reasons behind the stock currently carrying a Zacks Rank #4 (Sell).