Level 3 to Buy WilTel for $680 Million

Level 3 Communications Inc. said today it plans to acquire wholesale carrier WilTel Communications Group LLC, part of Leucadia National Corp.

Level 3 will pay $370 million plus 115 million shares, which, based on Friday’s closing price of $2.70, comes out to about $310.5 million. Level 3 maintains the right to substitute cash for stock.

The deal is expected to close in the first quarter of 2006.

Level 3 is buying all of Tulsa, Okla.-based WilTel’s communications business, including the multiyear contract with SBC, signed last June, and the Vyxx video transmission division. SBC Communications Inc., which is slated to acquire AT&T Corp., is WilTel’s biggest customer.

WilTel has had the SBC contract for years. When  SBC announced in January it wanted to buy AT&T, it also said it planned to migrate the services provided by WilTel to the merged SBC and AT&T network. WilTel was able to amend its contract with SBC, guaranteeing the provision of its services to the nation’s second-largest Bell company through 2009.

Level 3’s acquisition plans do not include WilTel's headquarters building or the assumption of any of WilTel's outstanding debt or mortgages.
The Vyxx video business delivers nearly 250,000 fiber and satellite video feeds, and more than 5 million ads and promotional media content, around the world each year.

"We plan to combine and optimize the Level 3 and WilTel networks,” said Kevin O’Hara, president and COO of Level 3, in a news release. “The merged network will reach 50 new markets and include 3,000 new route miles compared with Level 3's pre-acquisition facilities. We expect to migrate substantially all of WilTel's IP, optical and voice transport traffic to the combined network."

JP Morgan and Evercore Partners acted as financial advisors to Level 3, while Willkie Farr & Gallagher LLP acted as legal counsel.

Telecom analyst Jeff Kagan says today’s announcement fits into the industry’s merger craze. “As the Bells and cable TV [industries] bulk up to compete, nationally, companies like Level 3 and WilTel face larger, more fierce competitors,” he notes. “This merger strengthens two good, but smaller competitors, and will help them compete against this new wave of competition.”

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