From yesterday's WSJ:
Level 3 Nears Deal for Genuity Assets
Transaction, Valued at More Than $100 Million, Requires Approval of Banks, Verizon
By Mitchell Pacelle and Dennis K. Berman
Level 3 Communications Inc. is trying to finalize a deal to acquire most of the assets of ailing Internet service provider Genuity Inc. for more than $100 million, people involved in the matter said.
Level 3, a fiber-optic-network carrier flush with capital from an investor group that includes Warren Buffett, still is negotiating final terms. The deal under consideration involves a complicated formula under which the price could rise as high as $140 million based on the assets acquired and the liabilities left behind. The deal would likely be executed through a Chapter 11 bankruptcy-court filing by Genuity, which is in default on more than $3 billion of debt.
But completing a deal will require approval from Genuity's banks and from Verizon Communications Inc., a shareholder and lender, which are currently at odds over Genuity's debt default, the people said.
The deal would be significant for Level 3, which along with other carriers has suffered from a glut of fiber-optic capacity. A number of its peers have been forced to file for bankruptcy protection. But with Mr. Buffett's backing, James Crowe , the chief executive of Level 3, is trying to ensure that Level 3 not only survives, but becomes a consolidator in the troubled telecommunications industry.
To date, potential buyers have been wary about wading into the telecom-industry carnage and bidding aggressively on multiple assets, although several have made tentative moves.
If Genuity opts to file for bankruptcy protection, it would be required by law to seek higher offers from other bidders.
Level 3, based in Broomfield, Colo., received a $500 million infusion of cash in July from a trio of investors, including Mr. Buffett's Berkshire Hathaway Inc., to acquire weaker rivals. Thus far, Level 3 has had some difficulty gaining traction. In July, its unsolicited bid to buy Williams Communications Group -- now WilTel Communications Group Inc. -- was rebuffed by the company, which subsequently struck a separate deal with another investor.
If it completes a deal with Genuity, Level 3 would acquire large contracts with Verizon, the regional Bell phone company based in New York, and the America Online Internet service of AOL Time Warner Inc. Genuity helps manage the two companies' dial-up and broadband access systems, which are banks of computer modems that connect local customers to the Internet. Level 3 sees less value in Genuity's fiber-optic lines, according to one person close to the matter.
Spokesmen for Level 3 and Genuity declined to comment on the talks.
Genuity shares were up four cents to 35 cents in 4 p.m. Nasdaq Stock Market trading. They traded at a 52-week high of $40 in November. Level 3 shares were down 22 cents at $4.76 on Nasdaq on Thursday.
Genuity, based in Woburn, Mass., had been part of GTE Inc. When GTE merged with Verizon, the two companies were required to spin off Genuity. Verizon retained an option to assume a controlling interest in Genuity after regulatory requirements were met. Verizon retained a 10% stake.
In July, Genuity drew down its $2 billion credit line from a bank syndicate. Days later, Verizon relinquished its option to assume an 80% stake, putting Genuity into default on the credit line and on a $1.15 billion loan from Verizon.
Genuity's banks, led by J.P. Morgan Chase & Co., now claim that they were misled about Verizon's long-term intentions, people involved in the matter said. Verizon maintains that it acted properly. The banks have been pressing Verizon to kick in additional capital to minimize the losses they would incur under a Level 3 deal, these people said. The two parties are still negotiating. A spokeswoman for J.P. Morgan declined to comment. A spokesman for Verizon said the parties were cooperating in the discussions. |
