Level 3 to buy WilTel for about $680 million in cash, stock
BROOMFIELD, Colo. – Level 3 Communications Inc. said Monday it agreed to acquire Internet access and services company WilTel Communications Group LLC from Leucadia National Corp. for about $680 million.Level 3, which operates IP-based fiber-optic networks said it will pay $370 million in cash and issue 115 million shares in the deal. Based on Friday’s closing price of $2.70 for Level 3 shares, the stock portion of the agreement is valued at $310.5 million. Level 3 has the right to substitute cash in lieu of stock.The Tulsa, Okla.-based WilTel delivers voice, data, video and IP services over a next-generation fiber-optic network. The acquisition includes all of WilTel’s communications business, including a multiyear contract with SBC Communications Inc. and WilTel’s Vyvx video transmission business.Leucadia shares rose $1.37, or 3.3 percent, to close at $42.96 Monday on the New York Stock Exchange. Broomfield-based Level 3 shares rose 18 cents to close at $2.88 on the Nasdaq Stock Market.SBC, WilTel’s largest customer, is in the process of acquiring AT&T Corp. and plans to migrate the services provided by WilTel to the combined company.Level 3 will not acquire certain WilTel assets and liabilities, such as WilTel’s headquarters or the assumption of any of WilTel’s outstanding debt or mortgage obligations, under the terms of the deal.Integration costs have been pegged at $100 million to $150 million, with the majority of those costs incurred in fiscal 2006, assuming the deal is closed in the first-quarter.Kevin O’Hara, Level 3’s president and chief operating officer, said that the combined Level 3 and WilTel will reach 50 new markets and include 3000 new route miles compared with Level 3’s pre-acquisition facilities.Level 3 estimates WilTel will contribute $1.5 billion to $1.6 billion in revenue in 2006, including the SBC master contract, but that amount is expected to fall to $600 million in 2008 as SBC traffic merges with AT&T. WilTel is expected to contribute between $50 million to $90 million in cash flow for 2006 and about $125 million to $150 million a year thereafter.