Network services provider Level 3 Communications, Inc. (NYSE: LVLT) has reached an agreement to purchase business services provider tw telecom (NASDAQ: TWTC) for $7.3 billion in stock and cash and assumption of debt. The companies expect the deal to close in the fourth quarter of this year, subject to the usual regulatory reviews and shareholder approval.
Shareholders of tw telecom will receive $40.86 in value for each of their shares, in the form of $10 cash and 0.7 shares of Level 3 common stock. Level 3 also will assume approximately $1.6 billion of net debt.
The combined company will leverage tw telecom’s metro network strength with Level 3’s global reach to create a more capable network services provider, the two parties assert. It will certainly create a large one. For the 12 months ending March 31, 2014, the companies together had pro forma revenue of $7.9 billion and adjusted EBITDA of $2.2 billion before synergies and $2.4 billion including expected run-rate expense synergies.
"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 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.
"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. The benefits created by this transaction deliver substantial value to both companies' stockholders, as it accelerates our objective of driving profitable growth and strengthening free cash flow per share growth over the long term," Storey concluded.
"The transaction is attractive from a financial perspective, as it is deleveraging and is accretive to free cash flow per share after the first year," added Sunit Patel, executive vice president and chief financial officer of Level 3. "In addition, the combination is expected to provide $240 million of annualized synergies, with $200 million from adjusted EBITDA savings and $40 million from capital expense savings."
Level 3 expects to realize approximately 70% of the anticipated adjusted EBITDA savings within 18 months after closing the transaction.
Level 3 says it has received committed financing of $3 billion for the deal. To speed the closing process, the two companies have reached a voting agreement with STT Crossing Ltd. a wholly owned subsidiary of Singapore Technologies Telemedia Pte Ltd. that owns approximately 23% of Level 3's outstanding stock.
However, the proposed deal has already garnered unwanted scrutiny. Andrews & Springer LLC, a boutique securities class action law firm, has already announced that it is trolling for unhappy tw telecom shareholders.
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