By Lauren Pollock
Level 3 Communications Inc. agreed to buy business Ethernet
provider TW Telecom for about $5.7 billion in cash and stock, a
deal that would expand Level 3's metropolitan footprint.
The deal values TW Telecom at $40.86 a share, a 12% premium to
Friday's close. Shareholders will receive $10 cash and 0.7 share of
Level 3 for each share of TW Telecom.
TW Telecom shares climbed 13% to $41.19 premarket, while Level 3
rose 4.2% to $45.92.
Level 3 Chief Executive Jeff Storey pointed to TW Telecom's
extensive local operations, which he said will complement Level 3's
global assets and capabilities. Level 3 operates network and data
centers in more than 60 countries and has global subsea
networks.
The companies valued the deal at about $7.3 billion, which
includes the assumption of about $1.6 billion in debt, and said TW
Telecom shareholders will own about 27% of the combined company on
a diluted basis.
Originally a joint venture of Time Warner Inc. and U.S. West
started in 1993, TW Telecom made its public trading debut in 1999
as Time Warner Telecom Inc.
Last year, activist investor Keith Meister of Corvex Management
LP, a protege of Carl Icahn, revealed a big stake in TW Telecom and
said he thought the company was a likely takeover target, owing to
its strength in the data space--a key growth area as customers
increase their use of mobile devices.
The company last month reported improved quarterly revenue,
helped by a big increase in data and Internet revenue, but profits
declined on higher expenses.
For its part, communications services company Level 3 gradually
has pared its losses since its 2011 acquisition of fellow long-haul
Internet service provider Global Crossing burdened it with higher
costs and slower-than-expected revenue growth.
The company in April raised its outlook for the year as its
belt-tightening paid off and its core network-services revenue
increased. Its shares have more than doubled over the past
year.
At Friday's close, Level 3's market value was $10.5 billion,
while TW Telecom's was $5 billion.
The deal is subject to approval from the U.S. Federal
Communications Commission and state agencies, along with the
shareholders of both companies. STT Crossing Ltd.--a unit of
Singapore Technologies Telemedia Pte Ltd., which owns about 23% of
Level 3's outstanding stock--has already entered a voting agreement
with the companies.
For the 12 months ending March 31, the combined company had
adjusted revenue of $7.9 billion and adjusted earnings of $2.2
billion. The deal is expected to create annual synergies of about
$240 million.
The companies said their geographic proximity should help ease
their integration as are both based in Colorado, with Level 3 in
Bloomfield and TW Telecom in Littleton.
Write to Lauren Pollock at lauren.pollock@wsj.com
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