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June 5, 2006 Broomfield, CO -- Level 3 Communications, Inc. has signed a definitive agreement to acquire Looking Glass Networks, Inc., a privately held facilities-based provider of metropolitan transport services. Level 3's payments in this transaction will total $165 million. Under the terms of the agreement, Level 3 will pay $96 million, consisting of $87 million in unregistered shares of Level 3 common stock and $9 million in cash. At closing, Level 3 will also pay Looking Glass liabilities of approximately $69 million, which are primarily senior secured debt.
Looking Glass, based in Oak Brook, IL, provides data transport services including SONET/SDH, Wavelength and Ethernet as well as dark fiber and carrier-neutral colocation. Looking Glass' network includes approximately 2,000 route miles serving 14 major metro markets, with lit fiber connectivity to approximately 215 buildings. Looking Glass also has dark fiber connectivity to approximately 250 additional buildings.
"The acquisition of Looking Glass will enhance our recently announced Level 3 Metro Services business unit," said Kevin O'Hara, president and chief operating officer of Level 3. "Looking Glass' metro expertise and proven ability to grow revenues with high margins will be beneficial to the growth and expansion of our metro business going forward."
"Looking Glass has a strong base of customers who buy a wide range of transport services in the largest U.S. metro markets. We believe they will benefit greatly from the combination of our existing platform with the advanced capabilities and reach of Level 3's broad network and services," said Lynn E. Refer, chief executive officer of Looking Glass. "Our team is excited to play a key role in Level 3's expanding metro services strategy, and we look forward to continuing to provide our customers with creative solutions when and where they need them."
The acquisition of Progress and ICG, and after close, of TelCove and Looking Glass will increase the number of traffic aggregation points directly connected to Level 3 fiber to approximately 5,100 in the U.S. and approximately 5,300 globally.
For the full year 2006, Looking Glass standalone is expected to generate approximately $75 million to $80 million of annual revenue, approximately 25 percent higher than 2005's revenue. Looking Glass' gross margin in 2006 is expected to be over 70 percent. On a standalone basis, Looking Glass is expected to generate $5 million to $10 million of annual positive cash flow in 2006, after approximately $12 million of capital expenditures and before net interest expense. For 2007, Looking Glass is expected to contribute $20 million of Adjusted OIBDA after integration expenses. Post integration annual cash flow is expected to be approximately $30 million to $40 million.
Credit Suisse acted as sole financial advisor to Looking Glass. Kirkland & Ellis, LLP acted as the company's legal advisor. Willkie Farr & Gallagher LLP served as Level 3's legal advisor.
Closing is subject to customary conditions, including receipt of applicable state and federal regulatory approvals. Closing is expected to occur in the third quarter of 2006.
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