October 17, 2006 - 11:25 a.m. CDT

DENVER Communications network operator Level 3 Communications Inc. said Tuesday it plans to acquire Broadwing Corp., which sells communications services, for about $1.4 billion in a cash-and-stock deal.

Level 3 agreed to pay $744 million in cash and issue 122 million shares, which will translate to $8.18 a share in cash and 1.3411 shares for each share of Austin, Texas-based Broadwing. The offer represented a 15 percent premium over Broadwing's closing price of $13.28 a share on Monday.

The deal is expected to close in the first quarter of 2007 pending approval by regulators and Broadwing shareholders. Shares of both companies rose on the news, with Level 3's stock up 4 percent and Broadwing's stock jumping 15 percent in morning trading.

"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," James Crowe, Level 3 chief executive officer, said in a statement.

J.P. Morgan analyst Jonathan Chaplin said the transaction would be a good move, noting that Broadwing's customer base fits well into Level 3's business.
"We believe this acquisition further consolidates supply in the long-haul market and will help in further stabilizing industry pricing," he wrote in a research note.

The Broomfield Colorado based Level 3, which sells wholesale dial-up and broadband Internet services, said it expected to spend between $110 million and $130 million to combine the operations. It said Broadwing's operations should start contributing to adjusted operating income next year.

Broadwing delivers data, voice and media services to wholesale and business customers over a 19,000-mile intercity fiber network.