Level 3 To Buy Bankrupt Genuity

Level 3, based here, will pay up to $242 million in cash and assume a "significant portion" of Genuity's existing long-term operating agreements to acquire Genuity's assets and operations, the companies said in a joint statement.

Genuity, which fell into default of a $2 billion line of credit in July, said it was filing voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code.

As part of the deal, Level 3 said it will acquire Genuity's managed services business, which it will combine with its (i)Structure subsidiary to form a new managed services operating company that will do business under the name of Genuity.

Level 3 CEO James Q. Crowe, said there was a "unique and compelling fit" between the two companies. He said, "Genuity's transport and dedicated and dial-up Internet access business--more than 80 percent of revenue--is complementary to Level 3's transport, managed modem and IP services business."

Paul R. Gudonis, Genuity chairman and CEO, said the deal "represents the best outcome for the key constituencies of both Genuity and Level 3."

Gudonis said Woburn, Mass.-based Genuity's largest customers and creditors had signed agreements supporting the transaction.

The largest customers are Verizon Communications, Genuity's former parent company, and America Online, which together accounted for greater than 60 percent of its $223 million in revenue for the third quarter of 2002, Genuity said.

According to the companies' statement, all but one of Genuity's banks have signed an agreement in support of the transaction, and Verizon has executed a new multi-year contract to purchase wholesale dial-up, IP, transport and other services from Level 3, to take effect when the transaction closes.

The transaction, which is expected to close during the first quarter of next year, is subject to approval by the bankruptcy court and certain government regulatory agencies.

Level 3 said it will hold a conference call to discuss the deal on Monday, December 2.