No. of Recommendations: 7
I have made the first post on the Lumen Technologies board to call attention to the crazy price action of the past three and a half weeks. I link the post here to float a fanciful idea admittedly out of left field: What if Berkshire used a relatively small slice of its enormous cash hoard to instantly become a leading player in digital infrastructure?
https://www.shrewdm.com/MB?pid=191883988Tl;dr: Lumen, a renamed rollup of analog telecom assets (CenturyLink) and a newer fiber network (Level 3) was left for dead due to massive debt and declining sales. The stock chart is ug-ly. The share price has slipped below $1 on several occasions. About two weeks ago, Corning announced Lumen had reserved 10% of its newest, thinnest fiber optics output over the next two years. About the same time, Microsoft announced a deal with Lumen to build out its AI infrastructure with faster connections between data centers. In short order, Lumen’s shares tripled, albeit from very low levels.
The appeal for Berkshire, already a major investor in the energy infrastructure space, would be acquiring hundreds of thousands of miles of fiber optic network cable that would take forever and cost a fortune to replace. Competing networks (AT&T, Verizon) are devoted to the end-user business, basically Ma Bell updated to fiber from copper.
Although Lumen retains some of this business through CenturyLink, the new management has signaled its willingness to divest these assets. Alone among the big players, Lumen’s new business model is facilitating the enterprise digital revolution by providing faster, closer connectivity to the data centers at its heart. This makes it a potential picks-and-shovels play in the AI space.
Debt today stands at about $20 billion. With roughly 1 billion shares outstanding, the share price is a good stand-in for the market cap — $1 billion three weeks ago, $3 billion today.
Kate Johnson, the former head of Microsoft U.S. hired as CEO two years ago, has an ambitious vision, so a buyout offer might not be received warmly. She is reported to have bought $2 million worth of stock with her own money at prices south of $1 a share.
What would happen if Berkshire offered a massive premium to the still very small market cap — say, $20 billion for the debt and another $20 billion for the equity. I’m guessing a lot of long-suffering Lumen shareholders would leap at such an offer.
Without the debt overhang, Lumen would be free to invest in a rapid expansion of its network, using new Corning fiber that can fit 2x-4x capacity into existing conduit, growing the network into the millions of miles Lumen already envisions. It could use railroad rights-of-way to lay more long-distance cable if it chose, just as Phil Anschutz did years ago.
This would be similar in some ways to the electrical transmission network BHE is building out but with one big advantage: it presents no fire hazard.
Just a thought!
Postscript: It seems only fair to point out that I have been evangelizing about the potential value of Lumen’s fiber network for a number of years and to date I have been completely wrong about its promise as an investment.
