Level 3 Buys TW Telecom for $5.7 Billion, Layoffs Coming?

The telecom and cable industry has already seen its fair share of big deals this year with Comcast’s Time Warner acquisition, the impending AT&T deal to gobble up DirecTV and a possible Sprint and T-Mobile merger.

This latest one, Level 3 Communications (LVLT) $5.7 billion bid for TW Telecom (TWTC), isn’t on a par with those buyouts, but officials believe it could position Level 3 to compete with the mega-corporations jockeying to dominate the market.

It could also bring layoffs owing to job duplication, the Denver Post reported. The deal merges two Colorado-based Internet network operators and is expected to enable Level 3, which would have a combined 13,000 workforce, to scale upward to where it can play with the big boys. Level 3 maintains global operations while TW Telecom’s services are confined to customers in North America.

Inasmuch as Level 3 is an Internet backbone provider—its fiber optic technology is used by Google (GOOG) and Netflix (NFLX)—and TW Telecom is a provider of business services such as Internet access and VoIP, the two companies are seen as complementary with little overlap. Still, their proximity to one another is likely to result in corporate job duplication, the Post reported.

"From a headcount and a non-headcount perspective, obviously we have the normal synergies—common corporate duplication—but the idea is to make sure we keep the salesforce we have," said Sunit Patel, Level 3 chief financial officer.

The deal already has yielded the exit of Larissa Herda, TW Telecom’s veteran chief executive, who will stay on until the transaction closes, the Post reported.

Patel, in an interview with the Post, said Level 3 believes the deal won’t hamper the company’s recent two-quarter turnaround after a long period of losses.

The deal is scheduled to close in Q4 pending regulatory approval.

“We believe this is a financially compelling and very strategic acquisition for Level 3 that will enhance our ability to continue to gain market share,” said Jeff Storey, Level 3 chief executive, said in a statement. “The transaction further solidifies Level 3’s position as a premier global communications provider to the enterprise, government and carrier market, combining TW Telecom’s extensive local operations and assets in North America with Level 3’s global assets and capabilities.”