A portion of those savings will likely come from a reduction in headcount, a Level 3 executive acknowledged Monday. But the number and location of eliminated jobs remains to be determined.
Level 3 (NYSE: LVLT) announced Monday that it has a deal to buy TW Telecom (Nasdaq: TWTC) for $5.7 billion in cash and stock. Including $1.6 billion in assumed debt, the companies valued the deal at a total of $7.3 billion. The deal is expected to close in the fourth quarter of this year.
Level 3 provides communications services worldwide, with a large network of long-haul fiber optics between cities. TW Telecom is noted for its Ethernet services and an extensive metropolitan fiber optic network in the United States.
Of the $240 million in savings, Level 3 estimates that about $90 million will come from operations, a figure that chief administrative officer Laurinda Pang said includes both headcount and non-headcount components.
Level 3 employs about 10,200 people globally, including about 2,400 in Broomfield. TW Telecom employs about 3,400 people, including 1,300 in Colorado. Pang said Level 3’s headquarters will remain in Broomfield, and that the company likes TW Telecom’s south Denver location in part for the access to talent there.
But Pang said it will likely take months before all of the details of integrating the two companies – including headcounts and the impact on specific company locations – are hashed out.
“Naturally when you bring two companies together that do similar things there is overlap, and we envision that to be identified as we go through this process,” Pang said. “But the great thing I think for Colorado is these two companies are coming together and the headquarters remain in Colorado … which I think is good for the state.”
Jeff Storey remains chief executive of Level 3, while Sunit Patel stays on as chief financial officer and James Ellis as chairman of the board. TW Telecom chief executive Larissa Herda will leave the company once the deal is final.
Over the 12 months prior to March 31, Level 3 and TW Telecom brought in combined revenue of $7.9 billion. Pang said Level 3, which has posted two quarterly profits in a row after five years of losses, expects to remain profitable post-merger. The deal is expected to be accretive to free cash flow per share after the first year following the transaction’s close.
“We believe this is a financially compelling and very strategic acquisition for Level 3 that will enhance our ability to continue to gain market share,” Storey said in a statement.
Roger Entner, an analyst for Recon Analytics in Massachusetts, said the deal makes sense for Level 3 given the higher demand for broadband and the level of build-out of Level 3’s long-haul network and TW Telecom’s metropolitan network.
Level 3, which has network and data centers in more than 60 countries, has about 110,000 miles of long-haul fiber, about 74,000 of which are in North America. That’s in addition to about 33,000 miles of subsea fiber. TW Telecom, meanwhile, has very little long-haul fiber but more than 24,000 miles in cities, a figure that will nearly double Level 3’s metropolitan presence in North America.
“The traffic has gone up, and you get these inflection points and these changes where it makes a lot of sense to put it together,” Entner said. “For Level 3, it allows them to provide a lot more comprehensive offerings, and to provide traffic much closer to the customer. They don’t have to hand it over to a metro provider, but have more of the value chain in-house.
“It’s a good match. It’s a very complementary match,” he said.