Level 3 Scores $5.7B Deal for TW Telecom
Level 3 Communications (NYSE:LVLT) plans to acquire business network provider TW Telecom (NASDAQ:TWTC) for $5.64 billion, as the company looks to expand its domestic footprint.
Level 3 said Monday it agreed to pay $40.86 a share, a 12% premium over TW Telecom’s closing price on Friday. Under the terms of the deal, TW Telecom shareholders will receive $10 in cash and 0.7 of a Level 3 share for each share of TW Telecom.
TW Telecom shareholders will have a combined 27% ownership of the combined company. Including the assumption of debt, the transaction is valued at roughly $7.3 billion.
Shares of Level 3 dropped 5.5% to $41.68 on the news. TW Telecom jumped 7% to $38.87.
TW Telecom, which was created in 1993 as a joint venture between Time Warner (NYSE:TWX) and U.S. West, provides businesses with a wide range of communications offerings like high-speed Internet access and voice and data services.
Level 3 offers Ethernet, voice, data and other communications services to enterprise, government and carrier customers.
Jeff Storey, president and chief executive of Level 3, said the acquisition will help Level 3 gain market share by combining its global assets with TW Telecom’s extensive local operations in North America.
“TW Telecom’s business model is directly aligned with Level 3’s initiatives for growth, which include building managed solutions to meet customer needs through an advanced IP/optical network,” Storey added in a statement.
Level 3 and TW Telecom, both of which are based in Colorado, said they expect to benefit from their close geographic proximity and previous integration experience at each company.
Combining the two companies is expected to create annual synergies of about $240 million. For the 12 months ended March 31, the combined company had pro forma revenue of $7.9 billion and adjusted EBITDA of $2.2 billion, or $2.4 billion including projected synergies.
The transaction is subject to regulatory approval by the Federal Communications Commission and state agencies. Shareholders must also give the green light. STT Crossing, which owns 23% of Level 3’s outstanding shares, has already pledged to vote in favor of the deal.
Citigroup and Bank of America Merrill Lynch acted as financial advisers to Level 3. Rothschild provided a fairness opinion. Evercore served as TW Telecom’s adviser.
Level 3 recently brightened its outlook for the fiscal year amid improved revenue from network services. The company has also benefited from cost-cutting measures initiated in the wake of its 2011 acquisition of Global Crossing.
Meanwhile, TW Telecom reported higher revenue from data and Internet services in the most recent quarter, although rising costs pushed earnings lower.
The company was labeled a takeover target last year by activist investor Keith Meister. His firm, Corvex Management, purchased a large stake in TW Telecom.