Level 3 to acquire tw telecom for $5.7B, bolstering enterprise service capabilities

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Level 3 has reached an agreement to acquire tw telecom for about $5.7 billion in cash and stock, a deal that immediately enhances its growing enterprise services business.

According to Level 3, the deal values tw telecom at $40.86 a share, a 12 percent premium based on Friday's market close.

Under the terms of the agreement, shareholders will receive $10 cash and 0.7 shares of Level 3 common stock for each share of tw telecom common stock that is owned when the acquisition closes.

Jeff Storey, CEO of Level 3 Communications, said tw telecom's large base of local assets made it an attractive target to complement Level 3's global network focus.

"We believe this is a financially compelling and very strategic acquisition for Level 3 that will enhance our ability to continue to gain market share," said Storey in a release announcing the acquisition. "The transaction further solidifies Level 3's position as a premier global communications provider to the enterprise, government and carrier market, combining tw telecom's extensive local operations and assets in North America with Level 3's global assets and capabilities."

One of the particular strengths tw telecom brings to Level 3 is its on-net fiber footprint. As of the end of the first quarter of 2014, the service provider had nearly 21,000 buildings connected to its fiber network.

"tw telecom brings the density of their local networks in North America and their extensive list of on-net buildings," Storey said. "In fact, there's relatively little overlap with the companies' on-net building list."

Storey added that "based on preliminary analysis we estimate that we have less than 10 percent overlap with the tw telecom's nearly 21,000 buildings, giving us 35,000 unique locations globally."

Likewise, tw telecom's existing customers will get access to Level 3's "local-to-global" footprint. Today, Level 3 operates network and data centers in more than 60 countries and has a number of global submarine cable networks.

Level 3 said it expects the transaction to create total annualized synergies of approximately $240 million, with $40 million from annualized capital expenditure savings and approximately $200 million of annualized Adjusted EBITDA savings.

From a network expenses perspective, the service provider expects to save on third-party last mile access costs by migrating over to the Level 3 network and use the combined on-net footprint to reduce third-party costs.

Set to close in the fourth quarter of 2014, the acquisition will have to clear customary regulatory approvals from the FCC and other U.S. state regulatory agencies. The deal also needs approval from stockholders of both companies.

For more:
- see the release
- WSJ has this article (sub. req.)

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Updated article on June 16 with live quotes from Jeff Storey, the CEO of Level 3 Communications.