By Supantha Mukherjee and Aurindom Mukherjee
(Reuters) - Telecommunications services company Level 3 Communications Inc said it would buy internet services provider tw telecom Inc for $40.86 per share in cash and stock to expand its commercial fiber network in the United States.
The deal, valued at about $5.64 billion based on outstanding shares as of April 30, represents a premium of 12 percent to tw telecom's Friday closing price of $36.34 on the Nasdaq.
Tw telecom shares, which have not traded over $40 since 2001, were up 10.5 percent at $40.15 on the Nasdaq on Monday morning.
"I think it's a fair price for TWTC shareholders, certainly the highest multiple the stock has seen," Stephens analyst Barry McCarver told Reuters.
Under the terms of the deal, tw telecom stockholders will get $10 cash and 0.7 shares of Level 3.
Metropolitan fiber networks are seeing rapid growth as its customers, which include telecommunication carriers and companies in various sectors, transfer more data, voice, video, and Internet traffic across their networks.
"TWTC has a very dense fiber metro base, and I think combined with LVLT domestic and international long-haul routes, the company will be able to deliver a new level of fiber connectivity around the world," McCarver said.
Level 3 said it expects integration costs of about $170 million and potential savings of about $2 billion.
The deal is intended to qualify as a tax-free reorganization, the companies said.
Tw telecom, founded in 1993 as a joint venture between US West and Time Warner, is one of the largest business ethernet providers in the United States. It connects more than 20,000 commercial buildings to its fiber network.
Level 3 operates and leases out fiber-optic communications networks to telecom carriers for voice and data communication and connects more than 60 countries in North America, Latin America, Europe and a portion of the Asia/Pacific region.
Tw Telecom and Level 3 competes with CenturyLink Inc, AT&T Inc and Verizon Communications Inc in the United States.
A combined Level 3 and tw telecom was bad news for incumbent telecom companies such as AT&T, Verizon and Centurylink who would now have a peer taking a share of the enterprise space, D.A. Davidson and Co analyst Donna Jaegers said.
Level 3 said it has received financing of $3 billion and expects the deal to close in the fourth quarter.
Citi and BofA Merrill Lynch acted as financial advisers to Level 3. Evercore was tw telecom's financial adviser.
Level 3 shares, which have doubled in value in the last 12 months, were little changed in early morning trading on the New York Stock Exchange.
(Editing by Saumyadeb Chakrabarty, Ted Kerr and Joyjeet Das)