Level 3 Acquiring TW Telecom As Sector Consolidation Continues

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According to the New York Times, Level 3 Communications, Inc. (NYSE:LVLT) is snapping up rival TW Telecom Inc (NASDAQ:TWTC) for close to $5.7 billion. TW Telecom specializes in providing business Internet connections.

Level 3’s deal with TW Telecom

The deal calls for Level 3 Communications, Inc. (NYSE:LVLT) to pay $10 a share in cash and 0.7 of a share of its stock for each TW Telecom share. That works out to around $40.86 a share, more than 12% higher than TW Telecom Inc (NASDAQ:TWTC)’s closing price Friday afternoon. Level 3 will take on around $1.6 billion in debt to finance the acquisition.

Expected to be finalized by the end of the year, the acquisition of TW Telecom will further increase the size of Level 3, already among the largest providers of back-end Internet services. Level 3’s network of fiber optic cables is used by thousands of businesses, including tech giants such as Google and Netflix.

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The acquisition of Colorado-based TW Telecom will give Level 3 Communications, Inc. (NYSE:LVLT) a greatly expanded presence in network services such as  Internet access and online-based voice calling to businesses. According to recent SEC filings, TW Telecom Inc (NASDAQ:TWTC) made $36.5 million in profit last year on just over $1.6 billion in total revenue.

Statement from Level 3

“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,” Jeff Storey, Level 3’s CEO, noted in a statement released earlier today. “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.”

Level 3 also said it anticipates the acquisition will produce close to $240 million in overall cost savings, mainly from trimming network and operating expenses.

Lots of recent M&A activity in the telecom sector

A number of analysts have pointed out that the telecom industry has already seen several of the biggest deals so far this year. For example, just a couple of months ago, Comcast Corporation (NASDAQ:CMCSA) (NASDAQ:CMCSK) ponied up a premium price to acquire Time Warner Cable. Furthermore, AT&T is trying to acquire DIRECTV (NASDAQ:DTV) and Sprint Corporation (NYSE:S) and T-Mobile US Inc (NYSE:TMUS) are also seeking regulatory approval for a merger.