* Deal for $40.86/share in cash and stock
* Tax-free deal for more than $5.6 billion
* Offer comprise $10 in cash, 0.7 Level 3 share
* Companies expect to close deal in fourth quarter
(Adds details, updates shares)
By Supantha Mukherjee and Aurindom Mukherjee
June 16 Level 3 Communications Inc will
buy internet services provider tw telecom Inc for more
than $5.6 billion 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 total
deal value is based on outstanding shares as of April 30.
Tw telecom shares, which have not traded over $40 since
2001, reached an intraday high 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 get $10 of cash and 0.7 shares
of Level 3 for every share they own, the companies said.
Level 3 shareholders would own 71 percent of the combined
company 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 Internet traffic across their networks.
"TWTC has a very dense fiber metro base, and I think
combined with LVLT domestic and international long-haul routes,
the company 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 billion. It will also assume tw's
debt, which stood at $1.6 billion on March 31.
On a conference 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 company 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 our 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
A combined Level 3 and tw telecom was bad news for incumbent
telecom companies such as AT&T, Verizon and CenturyLink who
would now 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 was tw telecom's financial adviser.
Level 3 shares, which have doubled in value in the last 12
months, were down 5.7 percent at $41.59 in afternoon trading on
the New York Stock Exchange. Tw telecom shares were up 7.3
percent at $38.98.
(Editing by Saumyadeb Chakrabarty, Ted Kerr, Joyjeet Das and