Warren Buffett, Others Invest $500M in Level3

Level 3 Communications Inc. (LVLT) said billionaire Warren Buffett and two other investors have agreed to buy $500 million of Level 3 debt to allow the money-losing fiber-optic carrier to make acquisitions.

Broomfield, Colorado-based Level 3 said in a statement it would sell 10-year convertible notes yielding 9 percent to Buffett's Berkshire Hathaway Inc. investment firm, Longleaf Partners Funds , and Legg Mason Inc.

Until now, Buffett has largely steered clear of technology and telecoms investments. In a statement, he expressed confidence in Level 3 management, including Chairman Walter Scott, who sits on Berkshire Hathaway's board.

"Liquid resources and strong financial backing are scarce and valuable assets in today's telecommunications world," Buffett said. "Level 3 has both."

Level 3 shares jumped to $5.20 in pre-open trading from a Friday close at $2.89 on the Nasdaq stock market.

Longleaf will buy $300 million of the debt, and Berkshire Hathaway and Legg Mason will buy $100 million each.

The telecommunications industry has scared off many investors following accounting scandals, oversupply of capacity and disappointing demand.

"We invested in Level 3 to take advantage of consolidation opportunities in the telecommunications arena," said Longleaf adviser O. Mason Hawkins, chairman and chief executive of Southeastern Asset Management. "We believe these opportunities are substantial."

The sale of the Level 3 notes, which are convertible into common stock at the option of the holder, is expected to close today.

Level 3 said it would use the funds for potential acquisitions in the limping telecommunications sector and for other general corporate purposes.

The investment could touch off consolidation of assets within the sector, Level 3 Chief Executive James Crowe said.

"It is widely recognized that the telecommunications industry is going through a period of unprecedented turmoil," Crowe said. "At the same time, however, the ongoing shakeout is creating extraordinary opportunities as telecommunications companies, their network assets and customer bases become available."