Communications services provider Level 3 Communications, Inc. (LVLT) has agreed to acquire business ethernet provider TW Telecom Inc. (TWTC) in a stock and cash deal of about $7.3 billion, the two companies said Monday.
The deal value includes the assumption of about $1.6 billion of TW Telecom's net debt as of March 31. Shares of TW Telecom are gaining more than 12 percent in pre-market trades following the announcement of the deal.
Under the terms of the deal, that is intended to qualify as a tax-free reorganization, TW Telecom shareholders will receive $40.86 per share of TW telecom common stock, consisting of $10 in cash and 0.7 shares of Level 3 common stock.
The per share price represents a 12.4 percent premium to TW Telecom's closing stock price of $36.34 on Friday. The transaction will create a combined company with enterprise value of $25 billion.
Jeff Storey, president and CEO of Level 3 said, "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."
As part of the transaction, Broomfield, Colorado-based Level 3 has received committed financing of $3 billion.
Additionally, Level 3 and Littleton, Colorado-based TW Telecom have entered into a voting agreement with STT Crossing Ltd., a wholly owned subsidiary of Singapore Technologies Telemedia Pte Ltd, which owns about 23 percent of Level 3's outstanding stock.
The transaction, subject to a vote of the stockholders of both companies, is expected to close in the fourth quarter of 2014.
Following the closing, TW Telecom stockholders will own about 29 percent of the combined company's outstanding shares, or 27 percent on a fully diluted basis. This includes the shares associated with Level 3's 7 percent convertible senior notes due 2015.
For the twelve months ending March 31, 2014, the combined company 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.
Level 3 expects the transaction to create substantial total annualized synergies of about $240 million, with $40 million from annualized capital expenditure savings and about $200 million of annualized adjusted EBITDA savings.
Level 3 noted that its global customers will benefit from TW Telecom's deep metropolitan footprint and buildings connected to the network, enabling a higher quality and more reliable on-net experience for customers doing business in North America.
Meanwhile, TW Telecom's customers are expected to benefit from Level 3's extensive local-to-global footprint, with owned network and data centers in more than 60 countries and significant global subsea networks.
Level 3 expects the transaction to be accretive to free cash flow per share after the first year following closing of the transaction.
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