We Study Billionaires - The Investor’s Podcast Network TIP326: Intrinsic Value of Lumen with Ben Claremon and Eugene Robin (Business Podcast)
Dec 6, 2020
Ben Claremon and Eugene Robin from Cove Street Capital dive into the complex world of Lumen Technologies, born from the merger of Level 3 and CenturyLink. They argue that the undervalued Level 3 holds significant hidden potential, while the outdated CenturyLink model distracts investors. The duo also discusses the declining traditional phone service market, Lumen's strategic position in the telecommunications sector, and the financial implications of their merger. With insights on intrinsic value and market dynamics, they offer a fresh perspective on Lumen's future.
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Level 3 and CenturyLink Merger
- Cove Street Capital initially owned Level 3 Communications, a company built on the premise of growing internet connectivity.
- After Level 3 merged with CenturyLink, Cove Street sold its shares due to concerns about the new management team.
Wall Street's Valuation Challenges
- Wall Street struggles to value companies with combined good and bad businesses, as well as shrinking businesses.
- This is why Lumen is undervalued, as it combines growing Level 3 assets with the declining CenturyLink business.
Impetus for the Merger
- The merger was driven by a substantial offer to Level 3, which Cove Street Capital accepted.
- CenturyLink constitutes a larger portion of the new business due to its revenue size, not profitability.