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Level 3 Plans $1.4B Broadwing Buy

Accelerating its push into the retail enterprise fiber-optic market, wholesaler Level 3 announced a $1.4 billion cash and stock acquisition of Austin, Texas-based Broadwing .

The deal, the latest in a series, effectively doubles Level 3's enterprise revenue.

As part of the buy-out, Broadwing investors will receive $8.18, plus 1.34 shares of Level 3 stock for each share of the Austin, Texas, company, according to the announcement.

With revenues nearly equally split between enterprise and wholesale customers, Broadwing will speed the growth of Level 3's Business Markets Group.

Although enterprise sales account for just 10 percent of Level 3's revenue, CEO James Crow told financial analysts "enterprise sales are a core matter" for the company.

"Broadwing is a valuable addition to Level 3's growing business focus," Crow said in a statement, adding that the purchase "is consistent with both the Level 3 wholesale market strategy, as well as our more recent entry into the enterprise market."

The CEO said the Broadwing national sales team has made great strides attracting enterprise customers, prompting improved revenue growth, according to Sunit Patel, Level 3 Chief Financial Officer.

Broadwing is expected to earn between $200 million and $250 million in 2008.

Broadwing's enterprise and service provider customers, will be migrated onto Level 3's backbone, Kevin O'Hara, Level 3's president and CEO, said. Broadwing currently operates a 19,000-mile, fiber-optic network.

Along with the purchase of Broadwing, Level 3's Business Markets Group has grown due to a number of previous fiber acquisitions.

Expanding its fiber footprint, Level 3 in 2005 paid $680 million for WilTel Communications Group's nationwide network.

Earlier this year it acquired Progressive Telecom's fiber-optic connections along the Southeast and then added network points in Colorado and Ohio with the purchase of ICG Communications.

Crow said the Broadwing agreement is a mix of the backbone deals and purchases such as TelCove.

That $1.2 billion acquisition, along with fiber-optic connections to 4,000 offices along 22,000 miles in 70 East Coast markets, signaled Level 3's entry into the profitable enterprise arena.

Despite the acquisitions and the costs to integrate the operations, Level 3 said as of June 30, it had $1.4 billion in cash and securities.

O'Hara said the company has completed most of the integration of WilTel "under budget and ahead of schedule." O'Hara said Level 3 is confident the same will happen for Broadwing.