GENU @ .27
B: Level 3 Communications Could Enjoy $712 Million Sales Boost
B: Level 3 Communications Could Enjoy $712 Million Sales Boost from Acquisition
Dec 03, 2002 (Daily Camera - Knight Ridder/Tribune Business News via COMTEX) --
Broomfield-based Level 3 Communications' acquisition of a bankrupt rival could
bring in roughly $712 million in annual revenues to Level 3, executives
estimated on Monday.
The telecommunications firm on Monday addressed investors and analysts regarding
its pending purchase of substantially all of Genuity's assets and operations.
By and large, the address was light on financial details. The purchase, valued
at $242 million, is pending bankruptcy court decisions and other factors.
But Level 3's Chief Financial Officer Sureel Choksi said estimates show that the
purchase could bring in about 80 percent of Genuity's revenues as a stand-alone
firm, which would be about $712 million.
The key value in the purchase is the Genuity's Internet access services, which
account for about 77 percent of its revenues. That includes a $360 million deal
with AOL.
Woburn, Mass.-based Genuity (Nasdaq: GENU, 27 cents), a data network firm like
Level 3, defaulted on $3.15 billion in loans in July. It filed for bankruptcy
protection last week.
Level 3 (Nasdaq: LVLT, $5.71), flush with a $500 million investment from
investors including Berkshire Hathaway, is on course to attempt strategic
acquisitions. The company's first failed attempt was a reported $1.1 billion bid
for Williams Communications, a bankrupt Tulsa, Okla., fiber-optic firm in July.
The so-far successful Genuity purchase -- anticipated to close in the first
quarter of 2003 -- is not intended to be the last, according to company
executives.
"The acquisition is a particularly compelling fit for Level 3 for a number of
reasons," said Chief Executive James Crowe. He said due to Genuity's assets and
particularly its contracts with companies including AOL and Verizon, the firm
"meets all the criteria" of the companies Level 3 is shopping for.
Analysts on Monday for the most part weren't able to get more financial details
from Crowe and Choksi, who pointed out that it's still early in the process to
determine what the integration and other costs will be.
Adam Quinton, from Merrill Lynch, said more than 60 percent of Genuity's sales
come from AOL and Verizon. He said the AOL pricing terms are scheduled to "step
down in price in January."
Crowe said those prices will soon be made public as part of the bankruptcy
filing, but doesn't think the major deals will be "materially different" for
Level 3 than they were for Genuity.
Choksi said he expects Level 3 will lose some of Genuity's international
business, which accounts for about 5 percent of its revenues.
He also said it will take "several quarters" to integrate the two companies,
with associated costs running into 2004. The company has indicated there will be
job cuts, but it hasn't been determined when or where.
By Erika Stutzman
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