Level 3 (Quote) today said it will pay Leucadia National Corp.
(Quote) $680 million cash and stock for its WilTel Communications
Group.
The deal, expected to close in early 2006, will enhance the Broomfield,
Colo., backbone operator's ability to offer wholesale voice, data and video
services to telecoms and ISPs.
In addition to adding to its fiber-optic network, Level 3 gains WilTel's
Vyvx video distribution subsidiary. While it provides only 10 percent of
WilTel revenues, Level 3 sees great potential in providing live video feeds
to news and entertainment outlets.
"There's no doubt in our minds that over time, video and media content in
general will move to IP fiber networks," James Crowe, Level 3 CEO, said in
a conference call with analysts.
Vyvx will continue to operate as a separate unit post-acquisition, while
relying on Level 3's network infrastructure.
Level 3 also adds multi-year contracts, including one with SBC (Quote).
SBC, which is moving its traffic onto AT&T's (Quote) network, is
still committed to spending at least $675 million with WilTel over the next
four years. SBC could pay an additional $50 million to Level 3 if
performance measures are met.
Assuming the SBC contract will force two companies with a sometimes prickly
relationship to work together. Earlier this year, Level 3 and SBC clashed
over VoIP fees.
Not included in the Level 3's purchase is WilTel's Tulsa, Okla.,
headquarters and any WilTel debt.
Integrating WilTel will take approximately 15 months to 18 months, said
Level 3 COO Kevin O'Hara. There will be layoffs as the best employees from
the combined companies will be retained.
No specific numbers were laid out; Level 3 has 3,100 workers and WilTel has
1,800 employees.
Level 3 has been actively acquiring network operators since the telecom
slide of the late 1990s. For example, it picked up the
assets of Genuity in 2002.
"We think this industry is ripe for consolidation and we are a logical
consolidator," O'Hara said.
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