Level 3 Communications, Inc. (LVLT) acquires TW Telecom Inc (TWTC) for $5.7 billion

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Level 3 Communications, Inc. (NYSE:LVLT) has acquired TW Telecom Inc (NASDAQ:TWTC) in a stock-and-cash transaction valued at $40.86 per share based on the market close as of June 13, 2014. 
TW telecom stockholders will receive $10 cash and 0.7 shares of Level 3 common stock for each share of tw telecom common stock that is owned at closing. This values the deal at $5.7 billion.

“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,” stated Jeff Storey, president and CEO of Level 3. “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.”

The companies are starting the planning process immediately that will be executed by a select team from both companies to ensure a successful integration. The companies will benefit from their close geographic proximity as both of them are based in Colorado.

Level 3 customers will benefit from TW telecom’s deep metropolitan footprint and buildings connected to the network. TW Telecom’s customers will benefit from Level 3’s local-to-global footprint with data centers in more than 60 countries and global subsea networks.

During the 12 months ending March 31, 2014, the combined company had pro forma revenue of $7.9 billion and Adjusted EBITDA of $2.2 billion. Here are more details from the press release:

The transaction is expected to create substantial total annualized synergies of approximately $240 million, with $40 million from annualized capital expenditure savings and approximately $200 million of annualized Adjusted EBITDA savings. Of the total expected annualized Adjusted EBITDA savings, approximately 55 percent are from network expense savings and approximately 45 percent are from operating expense savings.

The company estimates that the net present value of the potential synergies will be approximately $2 billion. The company expects to realize approximately 70 percent of expected Adjusted EBITDA savings within 18 months after closing the transaction.

The company expects to incur approximately $170 million of integration costs associated with this transaction, with approximately 60 percent of those costs from operating expenses, and 40 percent from capital expenditures to support integration activities.

The transaction is expected to be accretive to Free Cash Flow per share after the first year following transaction close.

Transaction Details

tw telecom 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 at closing. The transaction is valued at $40.86 per share of tw telecom common stock based on market close as of June 13, 2014, or approximately $7.3 billion, including the assumption of approximately $1.6 billion of net debt as of March 31, 2014. tw telecom has approximately 138 million basic shares outstanding and approximately 139 million shares outstanding on a fully diluted basis, giving effect to outstanding stock awards. tw telecom stockholders will own approximately 29 percent of the combined company’s outstanding shares, or 27 percent on a fully diluted basis, including the shares associated with Level 3’s 7% Convertible Senior Notes due 2015.

As part of the transaction, Level 3 has received committed financing of $3 billion. Additionally, Level 3 and tw telecom have entered into a voting agreement with STT Crossing Ltd (a wholly owned subsidiary of Singapore Technologies Telemedia Pte Ltd), which owns approximately 23 percent of Level 3’s outstanding stock.

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