Light Reading

Level 3 to Acquire tw telecom for $5.7B

Sarah Thomas
6/16/2014
50%
50%

Level 3 has agreed to acquire Ethernet service provider tw telecom for $40.86 per share in a cash and stock deal worth $5.7 billion, the companies confirmed on Monday.

The move unites two of the top Ethernet service providers in the US into one powerhouse company.

Level 3 Communications Inc. (NYSE: LVLT), a national fiber optic network operator and content delivery company that provides transport services for Netflix Inc. (Nasdaq: NFLX) and Google (Nasdaq: GOOG), among others across the globe, is acquiring its rival services provider to strengthen its connection to its enterprise, government, and carrier customers in the US. Under CEO Jeff Storey, Level 3 has been more aggressively pursuing an enterprise services strategy. (See Level 3 Revs Its Enterprise Engine.)

"tw telecom's business model is directly aligned with Level 3's initiatives for growth, which include building managed solutions to meet customer needs through an advanced IP/optical network," Storey wrote in the official news release announcing the deal.

tw telecom operates its own fiber connections into buildings in 80 markets around the country, following its most recent expansion late last year. The company has recently established industry leadership in delivering Ethernet as an on-demand service. (See tw telecom Expands Market Footprint and tw telecom Changes CoS Dynamics.)

(UPDATE:) Current Analysis analyst Cindy Whelan notes that this is a good deal for Level 3 both financially and service-wise.

"The carriers have a complementary service focus, particularly for Ethernet and cloud services (i.e., Cloud Connect and eLynk)," she says, "and while I don't think this acquisition will add much for Level 3 in terms of new markets, it does deepen their metro fiber reach and brings them nearly 21,000 fiber-attached buildings, along tw telecom's base of enterprise and government customers."

Whelan says both carriers have been strongly emphasizing customer experience for a number of years and credits Level 3 with working hard "in streamlining internal and customer-facing processes recently, so I would not expect this to be change significantly if the acquisition closes."

Rumors have been swirling around a possible tw telecom acquisition for years now, with first CenturyLink Inc. (NYSE: CTL) and then Level 3 as the likely buyers.

Level 3's share price jumped by 1.75% to $44.86 in pre-market trading Monday morning once the deal was announced. tw telecom's stock gained 11.45% to reach $40.50 in pre-market trading.

The $5.7 billion valuation is a 12% premium over tw telecom inc. (Nasdaq: TWTC)'s Friday closing price of $36.34. Level 3 says it expects the deal to be accretive on a free cash flow per share basis after the first year following the transaction close.

Both companies will be at Light Reading's Big Telecom Event (BTE) in Chicago this week, so we will follow up with more reaction to the move during the week.

— Sarah Reedy, Senior Editor, Light Reading

(6)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
whfsdude0
50%
50%
whfsdude0,
User Rank: Light Beer
6/16/2014 | 5:22:37 PM
Zayo
I am wondering how much this purchase is reactionary to Zayo's recent growth. They're gobbling up the metro ethernet market right now (at least in my market).
danielcawrey
50%
50%
danielcawrey,
User Rank: Light Sabre
6/16/2014 | 5:14:18 PM
Re: Can Level 3 do the sensible thing?
Usually these types of acquisitions depend on if cultural fit is a good one...

We'll see if these two assimilate or continue to operate with individual models. I personally don't know if consolidation is a particularly good thing in this sector. But we can only tell success looking backward, not forward. 
Mitch Wagner
50%
50%
Mitch Wagner,
User Rank: Lightning
6/16/2014 | 2:46:40 PM
Re: Can Level 3 do the sensible thing?
It sounds to me like this is a straightforward customer acquisition for Level 3. I'm not seeing assets here that tw telecom has that Level 3 wants. And if I'm reading this article right their footprint is similar, so Level 3 would not broaden its geographic reach.
Ray@LR
50%
50%
Ray@LR,
User Rank: Blogger
6/16/2014 | 11:28:15 AM
Re: Can Level 3 do the sensible thing?
I shou;ld explain what I mean by operational model (which I guess could mean almost anything anyone wants it to).

 

Basically, it seems to me that tw telecom has been very clever in the way it has focuised on some of the detailed operational processes that provide it with a clearer view of its customers and the ability to be able to turn up new services more quickly, as explained and detailed in this article

http://www.lightreading.com/spit-(service-provider-it)/customer-experience-management-(cem)/doing-the-dirty-work-pays-off/d/d-id/708358

 

What I am hoping is that Level 3 will not introduce new methodologies that impact that work -- and it's hard to see that bringing the 2 companies together will not necessitate the intergation of the IT systems and operations teams, so something somewhere will have to 'give'. 

 
Greg Scott
50%
50%
Greg Scott,
User Rank: Lightning
6/16/2014 | 11:07:19 AM
Re: Can Level 3 do the sensible thing?
What is the difference between the two  operational models?

 
Ray@LR
50%
50%
Ray@LR,
User Rank: Blogger
6/16/2014 | 9:17:14 AM
Can Level 3 do the sensible thing?
Here's when we find out if the Level 3 management have their heads screwed on properly.... the vital component in this deal is not the phyical assets, it's the operational model. In my view, if Level 3 rolls over tw telecom's operational model and imposes its own, it will destroy the value.

That's how it looks from here, anyway....
From The Founder
Light Reading sits down at CES with the head of Cisco's service provider video business, Conrad Clemson, to discuss how NFV and cloud security relate to video, the challenge of managing 4K/8K traffic, the global expansion of Netflix and virtual reality.
Flash Poll
Live Streaming Video
CLOUD / MANAGED SERVICES: Prepping Ethernet for the Cloud
Moderator: Ray LeMaistre Panelists: Jeremy Bye, Leonard Sheahan
LRTV Documentaries
EANTC Tests Nokia IP Routing & Mobile Gateway VNFs for Real World Deployment

2|9|16   |   5:08   |   (0) comments


Nokia obtained validation of its virtualized router and virtualized mobile gateway capabilities through rigorous testing performed by EANTC. The results set a new industry benchmark for outstanding performance, scalability, resiliency and manageability. Nokia VNFs are ready for telco cloud deployment, so that service providers can accelerate mobile, business and ...
Between the CEOs
CEO Chat With Level 3's Jack Waters

2|8|16   |   26:15   |   (1) comment


Light Reading CEO and founder Steve Saunders sits down with Level 3 Communications' CTO Jack Waters to discuss hot topics like virtualization, 4K and the future of telecom...
LRTV Custom TV
The Composable Telco

2|8|16   |   24:46   |   (0) comments


Heavy Reading's Principal Analyst Caroline Chappell presents the keynote at Light Reading's 2020 Vision Executive Summit in Dublin.
LRTV Custom TV
Join Us at the Digital Operations Transformation Summit

2|4|16   |   03:52   |   (0) comments


The Digital Operations Transformation Summit on February 21, 2016 at the Crowne Plaza Barcelona Fira Centre will bring together 50 senior executives to engage in a unique debate on the opportunities and challenges presented by the transformative evolving digital landscape. RSVP now at events@lightreading.com.
LRTV Custom TV
Making the Test: ADVA Ensemble Connector vs. Open vSwitch

2|4|16   |   01:28   |   (0) comments


Light Reading, in partnership with EANTC, recently tested ADVA's Ensemble Connector, which replaces open vSwitch and offers carrier-grade capability and interoperability. The test results strengthen ADVA's credibility as a provider in the virtualization space.
LRTV Custom TV
Bridging the Gap Between PoCs & Deployment in NFV

2|4|16   |   31:50   |   (0) comments


Charlie Ashton of Wind River presents the keynote at Light Reading's 2020 Vision executive summit in Dublin.
Between the CEOs
CEO Chat With Mike Aquino

2|3|16   |   17:34   |   (0) comments


The former CEO of Overture Networks, Mike Aquino, discusses why truly open virtualization solutions provide service providers with the greatest choice.
Shades of Ray
MWC: Buckle Up for 5G & the IIoT

2|2|16   |   02:28   |   (0) comments


This year's Mobile World Congress looks set to be a 5G land grab and a chance to get down and dirty with the Industrial Internet of Things (IIoT) – but what will the 5G discussions actually be about?
LRTV Custom TV
Case Study: Building China's Next-Gen TV Networks

2|2|16   |   5:01   |   (0) comments


With over 2 billion viewers worldwide, Shenzhen Media Group is one of China's largest content producers. By partnering with Huawei and Sobey, SZMG was able to modernize media operations with the Converged News Center, a production studio that is a model for next-generation workflows.
LRTV Custom TV
Quad Channel Modulator Driver with 46 Gbaud Capability from MACOM

1|28|16   |     |   (0) comments


MACOM's MAOM-003427 is the industry's first surface-mount modulator driver with 46 Gbaud capability to support next generation 200G and 400G applications.
LRTV Custom TV
Video Infographic: Validating Cisco's NFV Infrastructure

1|26|16   |   02:24   |   (1) comment


We all know that the network of the future will be virtual, but when will virtual become a reality? This video infographic covers the four key areas in which Light Reading, in partnership with EANTC, tested Cisco's NFV infrastructure: performance, reliability, multi-service capabilities and single pane of glass management.

For the full report, see

Between the CEOs
CEO Chat With Phil McKinney, CableLabs

1|22|16   |   13:36   |   (1) comment


At CES in Las Vegas, we met with Phil McKinney, CEO of CableLabs. Phil provides an update on the rollout of DOCSIS 3.1, his views on the future of open source and how consumer interest in virtual reality could affect network traffic.
Upcoming Live Events
March 10, 2016, The Cable Center, Denver, CO
April 5, 2016, The Ritz Carlton, Charlotte, NC
May 23, 2016, Austin, TX
May 24-25, 2016, Austin Convention Center, Austin, TX
All Upcoming Live Events
Hot Topics
Google's 5G Radio Ambitions Are Expanding
Dan Jones, Mobile Editor, 2/5/2016
Cincinnati Bell Joins Weight Watchers Club
Alan Breznick, Cable/Video Practice Leader, 2/5/2016
Yahoo & Verizon Sitting in a Tree...
Brian Santo, Senior editor, Test & Measurement / Components, Light Reading, 2/8/2016
Vodafone: Flexible Work Policies Boost Profits
Sarah Thomas, Editorial Operations Director, 2/8/2016
It's Time to Integrate OTT Video
Alan Breznick, Cable/Video Practice Leader, 2/8/2016
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
Light Reading CEO and founder Steve Saunders sits down with Level 3 Communications' CTO Jack Waters to discuss hot topics like virtualization, 4K and the future of telecom...
The former CEO of Overture Networks, Mike Aquino, discusses why truly open virtualization solutions provide service providers with the greatest choice.
Animals with Phones
Retro Is the Way to Be Click Here
Some animals are too cute for smartphones.
Live Digital Audio

Broadband speeds are ramping up across Europe as the continent, at its own pace, follows North America towards a gigabit society. But there are many steps to take on the road to gigabit broadband availability and a number of technology options that can meet the various requirements of Europe’s high-speed fixed broadband network operators. During this radio show we will look at some of the catalysts for broadband network investments and examine the menu of technology options on offer, including vectoring and G.fast for copper plant evolution and the various deployment possibilities for FTTH/B.