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Before Level 3, Others Showed Interest in tw telecom

**Editor’s Note: Please click here for a recap of the biggest channel-impacting mergers in Q3 2014.**

Colorado-based tw telecom had other suitors before Level 3 Communications entered an agreement in June to acquire the company in a deal valued at $40.86 per share.

But tw telecom had considered a combination with Broomfield, Colorado-based Level 3 as far back as 2012. In that same year, two entities other than Level 3 submitted non-binding offers to scoop up tw telecom. One firm submitted an offer of $30 per share while another party offered between $30 and $32 per share, according to a regulatory filing that was submitted last month in advance of shareholder votes on Level 3’s $5.7 billion acquisition of tw telecom.

Neither party, however, submitted a final bid for tw telecom, according to the filing, which did not name either party.

On Oct. 28, Level 3 and tw telecom shareholders will vote on a merger that may have been spurred on by talks during an investor conference this past spring.

During the March 10, 2014, conference, Level 3 CEO Jeff Storey and his counterpart at tw telecom, Larissa Herda, chatted about developments in the telecommunications industry. The executives arranged a meeting to continue the talks, and on April 2, Storey expressed interest in potentially combining with Littleton-based tw telecom, according to the Securities and Exchange Commission filing.

On May 16, Storey proposed a merger that valued the transaction at $37 per share of tw telecom common stock based on Level 3’s closing price at the time. Herda was given the green light by tw telecom’s board to counter at $42 per share.

“The board also determined not to authorize management to contact other parties at that time with respect to a potential business combination,” the filing said, “given the risks of contacting other parties and the assessment with respect to the low likelihood of interest of other parties.”

Herda countered on May 20, and less than a month later, Level 3 announced the merger agreement in which tw telecom stockholders will receive $10 in cash and 0.7 shares of Level 3 common stock for each share of tw telecom common stock that is owned at closing. The merger represents a premium to tw telecom’s stock price of between 22.36 percent and 29.06 percent based on various closing prices, according to the regulatory filing.

Still, some tw telecom shareholders didn’t think the price fetched by management and the board was fair. After the merger was announced, three putative class-action lawsuits were filed against tw telecom, its board and Level 3. The lawsuits, filed in the Court of Chancery of the State of Delaware, have been consolidated, and the parties last month entered into a memorandum of understanding that provides for a settlement, according to the filing.

Founded in 1993 as a joint venture between US West and Time Warner, tw telecom served approximately 29,700 customers as of June 30. Herda has led the company since 1998, and revenues during her employment there have ballooned from $26 million in 1996 to $1.6 billion last year. 

Should she depart the merged company under a condition that meets a “qualifying termination,” Herda stands to receive a “golden parachute” of $40 million, including roughly $11.2 million in cash and $28.8 million in equity, according to the filing.


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