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Cable Technology Feature Article

June 18, 2014

Wheelings & Dealings: Level 3 Poised to Acquire tw telecom, Debt and All

By Matt Paulson, TMCnet Contributing Writer

Leading Voice over Internet Protocol (VoIP) provider Level 3 Communications has announced they will be purchasing tw telecom (News - Alert), the third-largest business ethernet provider in the United States. This move is particularly unusual due to the fact that Level 3 is planning on buying up tw telecom's $1.6 billion debt, bringing the acquisition to a grand total of around $7.3 billion.

The company will reportedly pay for the acquisition in a mix of stocks and cash, split between $10 cash and 0.7 shares of Level 3 stock per share of tw telecom stock. According to Level 3 Chief Executive Jeff Storey, “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.” Because the two companies have largely complementary networks, Level 3 will be able to leverage tw telecom's resources to gain an edge over many of their biggest rivals. Level 3 predicts that the deal will help generate around $240 million in annualized synergies, and expects the deal to boost free cash flow per share after around a year

While Level 3 is a global telecommunications provider, tw telecom only caters to customers within the United States and carries Internet data for its clients. Level 3's reputation is based on their ability to transmit data efficiently over long distances. tw telecom's array of fiber-optic connections throughout the country in major metropolitan areas will help facilitate the company's ability to deliver information at high speeds.

Level 3 claims to have secured committed financing of $3 billion, and also entered an official voting agreement with STT Crossing Ltd. STT Crossing is a unit of Singapore Technologies Telemedia Pte Ltc, which currently owns just under 25 percent of Level 3's stock portfolio.

Edited by Maurice Nagle

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