Level 3 to Acquire Broadwing Corporation
Tuesday October 17, 8:00 am ET
Combination Will Further Leverage Level 3's Nationwide Network
Acquisition Expected to be Adjusted OIBDA Positive in 2007 and Cash Flow Positive in 2008
Purchase Price of Approximately $1.4 Billion in Aggregate Cash and Stock
Acquisition Expected to Accelerate Growth of Level 3's Business Markets Group
BROOMFIELD, Colo., Oct. 17 /PRNewswire-FirstCall/ -- Level 3 Communications, Inc. (Nasdaq: LVLT - News) today announced that it has signed a definitive agreement to acquire Broadwing Corporation (Nasdaq: BWNG - News), a publicly held provider of optical network communications services. Under the terms of the agreement, Level 3 will pay $8.18 of cash plus 1.3411 shares of Level 3 common stock for each share of Broadwing common stock outstanding at closing. In total, Level 3 currently expects to pay approximately $744 million of cash and issue approximately 122 million shares.
Broadwing, based in Austin, Texas, delivers data, voice and media solutions to enterprises and service providers over its 19,000 mile intercity fiber network. Approximately half of Broadwing's revenue comes from the wholesale market, with business customers comprising the remaining revenue.
"The acquisition of Broadwing is consistent with both the Level 3 wholesale market strategy as well as our more recent entry into the enterprise market," said James Q. Crowe, chief executive officer of Level 3. "We believe the combination of Level 3 and Broadwing will create value for our investors through the elimination of duplicative network and operating costs, the addition of a solid revenue base, and a further strengthening of our financial position.
"Broadwing has made great strides with national enterprise customers as a result of their strong product portfolio and national sales teams. This creates an exciting opportunity for us to leverage both of these capabilities to accelerate the growth of Level 3's Business Markets Group."
"We are confident in our ability to successfully integrate Broadwing," said Kevin O'Hara, president and chief operating officer of Level 3. "We have completed the majority of integration efforts from our WilTel acquisition under budget and ahead of schedule. The integration activities for our more recent acquisitions are also on plan."
"Bringing together the resources and talents of Broadwing and Level 3 is an exciting opportunity for our company, allowing us to capitalize on the strengths of both companies and on advances in technology," said Steve Courter, chief executive officer of Broadwing Corporation. "The combination of our two operations will create a powerful company in the global telecommunications industry with strong growth potential."
"During 2006, Broadwing has grown revenue and improved its margin profile," said Sunit Patel, chief financial officer of Level 3. "Broadwing has had success with expanding its enterprise customer base and service offerings as well as its transport business. We expect the combined operations to directly benefit from these efforts.
"Broadwing is expected to contribute positive Adjusted OIBDA in 2007, and even though we expect integration efforts to extend into 2008, we expect Broadwing will generate approximately $200-$250 million of Consolidated Adjusted OIBDA in 2008.
"Including the benefit of synergies and the cost of integration including capital expenditures, this transaction is free cash flow positive in 2008 and should contribute over $200 million of free cash flow in 2009. Total integration costs are expected to be approximately $110-$130 million.
"We expect the transaction to further improve Level 3's financial position and reduce leverage given its expected positive Adjusted OIBDA contribution and Broadwing's approximately $150 million of net cash as of June 30, 2006."
As of June 30, 2006, Level 3 had approximately $1.4 billion of cash and marketable securities on hand as adjusted for the acquisitions of TelCove and Looking Glass, the sale of Software Spectrum and the redemption of its outstanding 9.125% Senior Notes due 2008 and 10.50% Senior Discount Notes due 2008.
Closing is subject to customary conditions, including receipt of applicable state and federal regulatory approvals, and is also subject to the approval of the stockholders of Broadwing. Closing is expected to occur in the first quarter of 2007.
Level 3 will hold an investor and media conference call today to discuss the announcement at 10 a.m. EDT. To join the call, please dial (612) 332-1025. A live broadcast of the call can also be heard on Level 3's Web site at www.Level3.com. An audio replay of the call will be available within 24 hours after the call through the Web site or by dialing (320) 365-3844 - Access code 845296.
Level 3 was advised on the transaction by Evercore Partners, JPMorgan and Merrill Lynch & Co. Level 3 received legal representation from Willkie Farr & Gallagher LLP.
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