The deal value represents a premium of 12% on tw telecom’s closing share price of $36.34 on Friday, and US-based Level 3 will pay $40.86 per share in a cash and stock deal designed to expand its commercial fibre network.
Level 3 said the combined enterprise value of the companies is $25 billion, and under the terms of the agreement, shareholders secure $10 cash and 0.7 shares of Level 3 per tw telecom share.
In a statement, Level 3 said it expects to pay over $170 million in integration costs, with synergies between the companies expected to generate potential savings of up to $2 billion.
“We believe this is a financially compelling and very strategic acquisition for Level 3 that will enhance our ability to gain market share,” said Jeff Storey, president and CEO at Level 3. "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.”
Storey added that tw telecom’s business model was directly aligned with Level 3’s growth strategy, and there will be a continued focus by both companies around developing its IP and optical network.
Level 3 has received $3 billion in financing and expects the deal to close in Q4 2014. US-based tw telecom was founded as a joint venture between US West and Time Warner in 1993, and is presently one of the largest Ethernet providers in the US.
Larissa Herda, chairman and CEO at the company, added that the deal is tailored around providing shareholders and employees with better opportunities in the combined company.
"The transaction with Level 3 provides the combined company with an enhanced competitive position, our customers with a broader product offering, and better opportunities for our employees as part of a larger company in an industry where scale is important to compete effectively against larger competitors," she said.
Both companies will begin a planning process around the integration immediately.
Level 3 believes that customers will now benefit from tw telecom’s metro footprint, with the combined entity now expected to focus more on the enterprise sector.
Sunit Patel, EVP and CFO of Level 3 added: “The combination is expected to provide $240 million of annualised synergies, with $200 million from Adjusted EBITDA savings and $40 million from capital expense savings."
The transaction is still subject to regulatory approval.
