Skip to main content

Editor's Note: This article previously appeared in The Deal.

Shares in fiber networking group Level 3 Communications (LVLT) rose Wednesday on a report from Benzinga that the company is reviewing options ranging from a sale to a buyback.

Level 3 stock gained $1.92, or 3.53%, to $56.30 per share, pushing its market cap to $20.1 billion. The price tag is high, but Level 3's fiber networks could attract a large systems operator such as Comcast (CMCSA) - Get Comcast Corporation Class A Report or even Alphabet's (GOOGL) - Get Alphabet Inc. Class A Report Google, which is building fiber in markets throughout the company.

Fellow fiber operator Zayo Group Holdings (ZAYO) - Get Zayo Group Holdings, Inc. Report rose 29 cents, or 1.02%, to $28.79.

Based in Broomfield, Colo., Level 3 generates more than $8 billion in annual sales from international fiber networks, data centers and other operations.

Benzinga mentioned Comcast as a potential suitor. The Philadelphia media group, which is working to close the $4 billion acquisition of DreamWorks Animation SKG (DWA) , declined to comment.

"It makes a ton of sense for Comcast," Stephens Inc. analyst Barry McCarver said.

The cable operators faces increased competition from Verizon Communications (VZ) - Get Verizon Communications Inc. Report and AT&T (T) - Get AT&T Inc. Report , which will be upgrading their mobile broadband networks in the coming years.

Comcast and Alphabet are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells CMSA or GOOGL? Learn more now.

TheStreet Recommends

"Just to remain competitive in the marketplace, a lot of the cable operators need to think about building out more fiber so they can deliver more bandwidth on their platforms," McCarver said.

The cable operators also need to think about wireless. Even if they partner with another company to develop a wireless offering, he suggested, it would make sense for the cable operators to have a fiber network that could help carry traffic between cell towers.

Google also could take interest, McCarver said. The Internet company is building out "last mile" fiber connecting to homes and businesses in places such as Austin, Texas, and Atlanta, and it is buying fiber leases to support the deployments.

Level 3 previously has been a buyer. Significant purchases include the 2011 acquisition of international fiber network operator Global Crossing for $3 billion, including assumed debt, and the 2014 buyout of metropolitan fiber company TW Telecom for $7.3 billion, including assumed debt.

The company has discussed acquiring companies or buying back shares in recent presentations.

"We firmly believe that putting excess cash to work is accretive to stockholder value, and our priorities are investing in the business for organic growth and disciplined M&A," CEO Jeffrey Storey said during the company's first-quarter earnings call in late April. "However, absent those opportunities, returning cash to stockholders makes perfect sense to us."

If Level 3 flips the script, and becomes a seller, Wells Fargo Securities LLC analyst Jennifer Fritzsche suggested there would be interest.

"With fiber being the critical part of almost every stock we follow, [Level 3] has the most of this asset and has greater scale and reach than any player," she wrote in a Wednesday report. "While we have often thought [Level 3] would be more of a buyer than a seller, we would anticipate great interest from multiple different verticals in a potential sale (not just telcos)."

Level 3 and Google did not immediately respond to queries.