Why TW Telecom Inc. Shares Popped Today

Is TW Telecom's jump meaningful? Or just another movement?

Jun 16, 2014 at 12:10PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of TW Telecom (NASDAQ:TWTC) rose more than 11% Monday morning after Level 3 Communications (NYSE:LVLT) announced an agreement to acquire the company. Shares of Level 3 fell around 5% on the news.

So what: Per the terms of the agreement, TW Telecom shareholders will receive $10 in cash and 0.7 shares of Level 3 for each share of TW Telecom owned at closing. Based on Friday's close, that values TW Telecom at $40.86 per share, or just over $5.63 billion. 

Now what: Noting the two companies' "directly aligned" business models and growth initiatives, Level 3 CEO Jeff Storey added, "The benefits created by this transaction deliver substantial value to both companies' stockholders, as it accelerates our objective of driving profitable growth and strengthening free cash flow per share growth over the long term."

TW Telecom doesn't exactly look cheap trading around 62 times next year's expected earnings. But Level 3 CFO Sunit Patel elaborated it's still attractive from a financial perspective as it will not only naturally deleverage the combined companies' balance sheet, but also be accretive to free cash flow after the first year. To be sure, TW Telecom investors might have wanted a higher premium for their company. But if Level 3 can pull this off with its own shares currently trading at a much more manageable 22.6 times next year's estimated earnings and 1.6 times trailing 12-month sales, I think the deal could be good for investors on both sides.

Leaked: Apple's next smart device (warning, it may shock you)
But if you're a TW Telecom shareholder looking to put your profits to work, you're in luck! Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Steve Symington owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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