Level 3 To Acquire Software Spectrum, Merge With Corporate Software Subsidiary

Corporate Software Software Spectrum Level 3 Communications

On Thursday, Level 3 announced the $122 million buyout of Software Spectrum, at a price of $37 per share. Wednesday's closing price for the Dallas-based reseller was $16.66 per share.

Software Spectrum will merge operations with Corporate Software, a $1 billion software distributor and services company also acquired by Level 3 Communications in March. The boards of both Software Spectrum and Level 3 have approved the acquisition.

The deal is expected to close by the third quarter. Howard Diamond, CEO of Corporate Software, will serve as chairman of the combined company. Judy Odom, current chairman and CEO of Software Spectrum, will serve as CEO. Keith Coogan, a longtime executive at Software Spectrum, will serve as president and COO.

The combination of Level 3's IP bandwidth with those two IT and licensing services companies is a strategic move for the Web services era, Diamond said.

"They're a great fit," said Diamond, who added that he's been trying to acquire Software Spectrum for six years. "The future of the industry is focused on .Net software and software by the drink. The concept of combining our capabilities and Level 3's ubiquitous bandwidth makes us a unique player. Now you lay Software Spectrum on top of that and it makes us bigger, stronger and better positioned for Web services and .Net."

The acquisitions and mergers of the former resellers signals a major transformation under way in Microsoft's traditional channel. Until recently, Corporate Software and Software Spectrum handled all the negotiations, cash flow and distribution for a big portion of Microsoft's software business. As part of a new channel model unveiled in 2001, Microsoft took that business direct and anointed its old resellers as enterprise software agents (ESAs) who would compete on licensing services, not on software pricing.

Diamond said the merger of Microsoft's two largest licensing management partners under Level 3 has nothing to do with Microsoft's new ESA model. The consolidation, he said, is about redefining strategy as the traditional software distribution business transforms from packaged product into a subscription-based Internet service.

Level 3 Communications is a major ASP and communications and information services company offering IP services, broadband transport and co-location services. It also offers IT services through wholly owned subsidiaries Corporate Software and iStructure, an ASP.