Purchase Price Consists of $68.5 Million in Shares of Level 3 Common Stock and $68.5 Million in Cash
Acquisition Will Extend Level 3’s Reach in Southeastern United States; Expands Reach and Services for Key Customers
BROOMFIELD, Colo., January 26, 2006 — Level 3 Communications, Inc. (Nasdaq:LVLT) today announced that it has signed a definitive agreement to acquire all of the membership interests of Progress Telecom LLC, a regional wholesale network services company based in St. Petersburg, Florida. Progress Telecom, LLC is jointly owned by Progress Energy, Inc. (NYSE: PGN) and Odyssey Telecorp, Inc.
Under the terms of the agreement, Level 3 expects to pay total consideration of $137 million, consisting of $68.5 million in unregistered shares of Level 3 Common Stock and $68.5 million in cash. The number of shares to be delivered will be determined immediately prior to closing. Progress Telecom’s network spans 9,000 miles, includes 29 metro networks and connects to international cable landings in South Florida and 31 mobile switching centers in the southeast. Progress Telecom serves approximately 200 customers with a significant concentration of international and wireless carrier customers.
“This transaction represents a unique opportunity to expand Level 3’s footprint in the southeastern region of the United States, where we have seen strong demand for our services,” said Kevin O’Hara, president and chief operating officer of Level 3. “More importantly, we serve a number of the same large, key customers, particularly certain wireless and international customers. We believe that the completion of this transaction will enable us to expand our relationship with these customers and offer them a broader set of services in more markets outside the southeast. Progress Telecom is a very successful wholesale carrier in the southeastern United States and this acquisition will increase the extent of our network coverage in the region.”
“We look forward to joining forces with Level 3,” said Ronald J. Mudry, president and chief executive officer of Progress Telecom. “We believe our customers will benefit greatly from expanded access to Level 3’s international network and its broad suite of transport, IP and VoIP service offerings.”
“We are pleased to have entered into this agreement to sell our stake in Progress Telecom to Level 3,” said Don Davis, executive vice president of Diversified Operations at Progress Energy. “We will continue to rely on Progress Telecom for transport and network management services that are critical to our business. We are confident that Level 3 will continue to deliver the quality of service we have come to expect from Progress Telecom.” Progress Energy is Progress Telecom’s largest customer.
“Progress Telecom has a reputation for operational excellence that we believe is consistent with the focus and reputation of both Level 3 and WilTel, which Level 3 recently acquired,” said O’Hara. “Progress Telecom has a highly respected management team with a deep understanding of the markets in which they operate, and we look forward to working with them.
“We believe that in addition to lowering our access costs in that region, the companies’ similar service offerings and customer bases, and complementary infrastructure represent unique cross selling opportunities,” added O’Hara. “While we expect to retain a significant local presence in the region, we believe we will be able to realize significant cost synergies by integrating certain operational and corporate activities. We expect to begin most network related integration efforts in 2007, once we have realized additional scale and efficiency through the integration of WilTel.”
“Progress Telecom currently generates annualized revenue of approximately $70 million and approximately $7 million of annualized positive free cash flow,” said Sunit S. Patel, chief financial officer Level 3 Communications.
“We expect to begin to realize most of the cost synergy benefits during 2007 and as a result, we expect annualized cash flow to improve to approximately $30 to $35 million once we have completed the integration,” added Patel. “We expect a cash-on-cash breakeven for this transaction of approximately three years, excluding potential revenue synergies.”
The agreement provides that Level 3 will not acquire certain assets and liabilities related to Progress Telecom’s wireless tower attachment business and its interests in affiliates focused on providing distributed antennae systems and tower backhaul services to wireless providers. Level 3 plans to have commercial services agreements in place to provide transport services and operation support to these former Progress Telecom affiliates and to cooperate with them on the development of complementary service offerings to better serve the wireless carrier segment.
The purchase price is subject to certain customary working capital adjustments. Level 3 has the right to substitute cash in lieu of delivering common stock. Closing is expected to occur early in the second quarter of 2006. Closing is subject to customary closing conditions, including receipt of applicable state and federal regulatory approvals.
The Company expects to provide additional information concerning this transaction during its fourth quarter 2005 earnings call scheduled for Tuesday, February 7, 2006, at 10:00 a.m. Eastern.
About Level 3 Communications
Level 3 Communications, Inc. (NASDAQ: LVLT), an international communications company, operates one of the largest Internet backbones in the world, connecting 180 markets in 18 countries. The company serves a broad range of wholesale, enterprise and content customers with a comprehensive suite of services including: Internet Protocol (IP) services, broadband transport and infrastructure services, colocation services, voice and voice over IP services, content delivery and media distribution services. These services provide the building blocks to enable Level 3’s customers to meet their growing demands for advanced communications solutions. The company’s Web address is www.Level3.com.
"Level 3 Communications,” "Level 3," the red 3D brackets and the Level 3 Communications logo are registered service marks of Level 3 Communications, LLC in the United States and/or other countries. Level 3 services are provided by wholly owned subsidiaries of Level 3 Communications, Inc. Any other service, product or company names recited herein may be trademarks or service marks of their respective owners.
Forward-Looking Statement
Some of the statements that we make in this press release are forward looking in nature. These statements are based on management’s current expectations or beliefs. These forward looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside our control, which could cause actual events to differ materially from those expressed or implied by the statements. The most important factors that could prevent us from achieving our stated goals include, but are not limited to our ability to: successfully integrate acquisitions; increase the volume of traffic on our network; defend our intellectual property and proprietary rights; develop new products and services that meet customer demands and generate acceptable margins; successfully complete commercial testing of new technology and information systems to support new products and services; attract and retain qualified management and other personnel; and meet all of the terms and conditions of our debt obligations. Additional information concerning these and other important factors can be found within Level 3’s filings with the Securities and Exchange Commission. Statements in this press release should be evaluated in light of these important factors. Level 3 is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.
