Level 3-TW Merger, Poison Pill in Reality

Shareholders will receive $10 in cash and 0.7 shares of Level 3 stock for each share of TW Telecom stock they own. TW Telecom stock has not traded above $40 a share since 2001.

What attracted Level 3 to TW Telecom is the smaller company’s fiber optic presence in 75 U.S. metropolitan areas. Among TW Telecom’s 20,255 connected buildings are 470 third-party data centers where the company’s customers deploy their own equipment or connect to the Internet cloud. The fit is a natural for Level 3’s already large fiber network, but there is an even larger consideration.

Level 3 competes with AT&T Inc. (NYSE: T), Verizon Communications Inc. (NYSE: VZ) and CenturyLink Inc. (NYSE: CTL), even though its market cap is just half that of CenturyLink’s $10 billion — and CenturyLink is much smaller than either AT&T or Verizon, which have market caps of around $180 billion and $200 billion, respectively. Even adding $5 billion in market cap helps Level 3 fight off an acquisition.

Now it is true that AT&T is focused on its $50 billion acquisition of DirecTV (NASDAQ: DTV), and Verizon is focused on paying down the massive debt it assumed when it purchased the portion of Verizon Wireless it didn’t already own. But Level 3 is not likely now to be a target for CenturyLink or a similar-size potential buyer looking to rev up its Internet service offerings to businesses.

Shares of TW Telecom were up about 7.7% at $39.13, after posting a new 52-week high of $40.51 shortly after the opening bell. The 52-week low is $25.83.

Level 3’s stock traded down nearly 6%, at $41.45 in a 52-week range of $19.71 to $44.77.

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