Level 3 To Acquire TW Telecom For $5.7 Billion

Level 3 Communications said Monday it plans to acquire business Ethernet provider TW Telecom for $5.7 billion in a deal Level 3 said will significantly expand its metropolitan footprint in North America.

The deal, expected to close in the fourth quarter of 2014, values Littleton, Colo.-based TW Telecom at $40.86 per share, or roughly $7.3 billion, including the assumption of approximately $1.6 billion in debt.

The combined companies said together they are valued at around $25 billion.

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Level 3 is a global Internet provider and offers a range of voice, data and content delivery services. The company, based in Broomfield, Colo., also has a portfolio of managed and cloud services, including its Cloud Connect solution, which gives enterprises their own private Level 3 network to more securely connect to cloud services such as Microsoft Azure and Amazon Web Services.

Andrew Pryfogle, senior vice president, Cloud Transformation at Intelisys, a Petaluma, Calif.-based master agent partnering with both Level 3 and TW Telecom, said he expects the two companies to especially complement each other when it comes to their cloud portfolios.

"TW Telecom has made a big investment in the intelligence of their network to do bandwidth on-demand and to ratchet up bandwidth very, very quickly in order to meet the demand of cloud applications. They have really taken a significant position in being a cloud enabler," Pryfogle said."If you combine that with what Level 3 is doing around their interconnections with Amazon Web Services and others, I think it’s a really good complement."

Level 3 said the acquisition will allow it to leverage TW Telecom's "deep metropolitan footprint" to enable more reliable and higher-quality services for its customers in North America.

"We get good scale and metro footprint density as a result of the transaction," said Andrew Crouch, president of North America and Asia-Pacific at Level 3. "In particular, [TW Telecom] brings with it north of 20,000 buildings across North America where they have their fiber-based Ethernet services within them. Level 3 has its own metro facilities, but the overlap between the two is very small."

TW Telecom, for its part, said the the deal will broaden its global services footprint, giving it access to Level 3's data center network that spans more than 60 countries.

Level 3 and TW Telecom said they are compiling a team from both companies to plan out the integration process. According to Crouch, the companies also are taking steps to integrate their channels.

"Our intent is to leverage the combined existing sales organizations to take further share of the market," Crouch said. "On the channel side, Level 3 and TW Telecom both have indirect channels and I remain committed to that indirect channel."

Pryfogle said Intelisys plans to help navigate its Level 3 and TW Telecom agents through the acquisition.

"With any acquisition there are going to be bumps in the road. The integration of companies is complicated and takes a long time," Pryfogle said. "For our community, when this happens, it just really stresses how critical it is to be aligned with a services distributor that can help you navigate those unpredictable waters."

The Level 3 and TW Telecom deal comes as the communications and networking markets continue to consolidate. In February, Comcast said it plans to acquire Time Warner Cable in a $45.2 billion deal that, if approved by regulators, would combine the two largest cable companies in the U.S.

Meanwhile, Sprint is reportedly plotting a move to acquire rival carrier T-Mobile in a deal that would combine the U.S.' third and fourth largest carriers, respectively.

Crouch said Level 3 CEO Jeff Storey and CFO Sunit Patel will maintain their positions in the combined company, but no other leadership decisions are being disclosed at this point.

PUBLISHED JUNE 16, 2014