Consolidation in CO: Level 3 to Acquire TW Telecom in $7.3B Deal

In a move sure to shake up the telecom industry—locally as well as globally—Level 3 Communications announced Monday that it will acquire TW Telecom for about $7.3 billion in a cash and stock deal.

The companies are both based in Colorado and are among the leaders in the state’s tech industry, as well as the worldwide telecom industry. Level 3 (NYSE: LVLT) is based in Broomfield, and TW Telecom (NASDAQ: TWTC) is headquartered in Littleton.

Executives from the companies said the move is a combination of complementary assets. If approved, it would give the new Level 3, which is an Internet backbone provider whose users include Google and Netflix, access to new business customers thanks to TW Telecom’s dense metropolitan fiber networks in cities around the U.S. The combined companies compete with AT&T, Verizon, and CenturyLink.

Level 3 will give TW Telecom stockholders $10 cash and 0.7 shares of Level 3 common stock for each of their shares, according to the release announcing the deal. As of the close of the markets on Friday, that equated to $40.86 per share of TW Telecom.

The deal is expected to close in the fourth quarter and is contingent on approval from stockholders and regulators, including the Federal Communications Commission.

Level 3 has one of the largest fiber-optic networks in the world, spanning more than 60 countries with long-haul lines connecting the Americas, Europe, and Asia. Level 3’s market capitalization is $9.68 billion, and it has more than 10,200 employees.

TW Telecom provides communications services to business customers and has dense metropolitan fiber networks in 76 North American markets. The company has a market cap of $5.3 billion, and it employs about 3,400.

“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,” Level 3 president and CEO Jeff Storey said in a release. “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.”

Over the last 12 months, Level 3 reported revenue of $6.3 billion and adjusted earning before interest, tax, depreciation, and amortization of $1.7 billion. TW Telecom reported revenue of $1.6 billion and adjusted EBITDA of $553 million during that period.

Analysts quoted in the media approved of the deal because Level 3 and TW Telecom focus on different market segments and provide different services. Roger Entner of Recon Analytics likened it to “combining an airline with a limo service,” in a story by Bloomberg.

Level 3 and TW Telecom aren’t the only multibillion-dollar telecoms in Colorado that have big plans underway. Boulder-based Zayo Group reportedly has met with investment banks and is moving toward an initial public offering that could value the company at $7 billion, according to Reuters. Observers predict Zayo to go public later this year or in 2015.

Zayo Group CEO Dan Caruso wrote about Zayo’s growth and early days last year in this Xconomy guest post.

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One response to “Consolidation in CO: Level 3 to Acquire TW Telecom in $7.3B Deal”

  1. great deal between the giants. looking forward for more advancements in telecom industry.