Level 3 to buy tw telecom to expand US fiber network

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Level 3 Communications Inc will buy provider tw telecom Inc for more than $5.6 in cash and stock to expand its commercial fiber network in the United States.

The $40.86 per-share deal represents a premium of 12 percent to tw telecom’s Friday closing price on the Nasdaq. The deal value is based on outstanding as of April 30.

Tw telecom , which have not traded over $40 since 2001, reached an intraday of $40.51.

“It’s a fair price for TWTC shareholders, certainly the highest multiple the stock has seen,” Stephens Inc analyst Barry McCarver told Reuters.

Tw telecom stockholders will $10 of cash and 0.7 of Level 3 for every share they own, the companies said.

Level 3 shareholders would own 71 percent of the combined and tw telecom shareholders the rest.

Metropolitan fiber networks are seeing rapid growth as customers, which include telecommunication carriers and companies in various sectors, transfer more data, voice, video, and traffic across networks.

“TWTC has a very dense fiber metro base, and I think combined with LVLT domestic and international long-haul routes, the will be able to deliver a new level of fiber connectivity around the world,” McCarver said.

Level 3 expects integration costs of about $170 million and potential savings of about $2 . It will also assume tw’s debt, which stood at $1.6 on March 31.

On a call, tw telecom Chief Executive Larissa Herda said she would step down after the deal.

Tw telecom, founded in 1993 as a joint venture between US West and Time Warner, is one of the largest business ethernet providers in the United States. It connects more than 20,000 commercial buildings to its fiber network.

The combined would have presence in 35,000 locations, Level 3 CEO Jeffrey Storey said on the call.

Level 3 operates and leases out fiber-optic communications networks to telecom carriers for voice and data communication and connects more than 60 countries.

“We still will be much smaller than primary competitors, the incumbent telcos, but we will have the scope and scale to compete in a consolidating industry,” Storey said.

Tw telecom and Level 3 compete with CenturyLink Inc, AT&T Inc and Verizon Communications Inc in the United States.

A combined Level 3 and tw telecom bad news for incumbent telecom companies such as AT&T, Verizon and CenturyLink who would have a peer taking a share of the enterprise space, D.A. Davidson and Co analyst Donna Jaegers said.

Citi and BofA Merrill Lynch acted as financial advisers to Level 3. Evercore tw telecom’s financial adviser.

Level 3 shares, which have doubled in value in the last 12 , were down 5.7 percent at $41.59 in afternoon trading on the Stock Exchange. Tw telecom shares were up 7.3 percent at $38.98. (Reuters)