Level 3 Acquiring TW Telecom As Sector Consolidation Continues

Level 3 Acquiring TW Telecom As Sector Consolidation Continues

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.

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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.

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.

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