Verizon Wont Acquire San Francisco-Based NorthPoint Communications
Nov. 30 (The Dallas Morning News/KRTBN)--Verizon Communications Inc. walked
away from an $800 million deal to buy NorthPoint Communications Inc. on
Wednesday, saying recent financial problems at the Internet access firm made it
an unattractive mate.
The announcement followed rumors earlier this month that the deal was unraveling
because NorthPoint recently restated earnings and has seen its stock price fall
markedly since the deal was commenced in August. Verizon officials denied the
rumors at the time.
NorthPoint stock closed at $14.25 the day Verizon said it would buy a 55 percent
stake in it; on Wednesday, it closed at $2, down 9 cents. The announcement
proved to be beneficial for Verizon, which closed up 81 cents at $55.81.
The deal's collapse is the latest in a string of setbacks for competitive
telecommunications providers that are challenging established phone companies'
hegemony in high-speed Internet access and phone service. Many carriers have
gone out of business or been bought out by larger firms because they were unable
to raise the money needed to stay in business.
San Francisco-based NorthPoint is in a precarious position because existing
customers are not bringing in enough cash to support its operations, analysts
say. Company officials say they are evaluating their financial position and
legal action against Verizon.
"This really came as a surprise," said Marvin Wamble, a NorthPoint spokesman.
"We will know more as we analyze it in greater detail."
NorthPoint's financial missteps give Verizon the right to trash the deal,
Verizon spokesman David Frail said. Verizon was created in June when GTE Corp.
and Bell Atlantic Corp. merged.
"If there was a material adverse change in their business we were permitted to
terminate the agreement," he said.
The collapse will save Verizon from paying $800 million in cash and stock for a
55 percent stake in a company with a market capitalization of just $266 million.
When the deal was announced, Verizon said it would use NorthPoint to sell phone
and digital subscriber line access outside the regions it already serves. The
merger's failure will probably put the company in hot water with regulators who
were eager to see Verizon compete with other regional phone companies, said Gary
Jacobi, an analyst with Deutsche Banc Alex.Brown.
Verizon said it will still be able to sell services outside its region through
its acquisition of OnePoint Communications Corp. of Chicago and through
partnerships with other competitive providers.
Verizon announced it was buying NorthPoint and OnePoint, which sells high-speed
Internet access to apartment buildings, on the same day.
In October, Verizon said it was shutting down an Irving-based unit -- Verizon
Select Services -- that served customers outside its regions. At the time,
officials said the combined Verizon-NorthPoint would be better suited to serve
those customers.
Verizon's about-face also raises questions about how well it investigated
NorthPoint's financial statements and business plan before agreeing to buy it,
analysts say.
"The rulebook says, know what you are buying before buying it," Mr. Jacobi said.
"I don't know if it's bad due diligence or the market conditions changing."
By Vikas Bajaj
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