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Level 3 Picks Up Genuity

Level 3, Inc. (NASDAQ: LVLT) has reached a definitive agreement with Genuity, Inc. (NASDAQ: GENU) to acquire substantially all of Genuity's assets and operations for $242 million, subject to adjustments.

Under the terms of the deal, which has the full support of Genuity's two largest creditors—the global consortium of banks that provided Genuity with a line of credit and Verizon Communications that provided a separate line of credit—Level 3 will operate Genuity as a separate business unit.

Genuity filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code in order to facilitate the acquisition process. Assuming approval of the company's reorganization plan by the bankruptcy court and the closing of the transaction, Genuity's creditors will receive the money Level 3 is paying for Genuity's assets as well as an undisclosed cash pay off on Genuity's balance sheet after the close of the deal. With more than $800 million in cash to fund the company's operations, Genuity will continue to operate its business and serve its customers without interruption during the transitional period.

Level 3's actions follow several months of negotiations with the group of banks that provided Genuity's $2 billion line of credit and Verizon Communications, which lent Genuity $1.15 billion, on a restructuring of the company's debt. The negotiations followed Verizon's decision on July 24, 2002 to relinquish its option to acquire a controlling interest in Genuity. This resulted in a default for Genuity under its credit facilities with the banks and Verizon. Genuity and its lenders subsequently agreed on several standstills while continuing negotiations. Ultimately, Genuity's senior management and its Board of Directors determined that this acquisition would ensure the continued integrity of its operations and provide the best possible result for the company.

Genuity will maintain its headquarters in Woburn, Mass. and continue to focus on delivering managed IP services for the enterprise market. The addition of Genuity's assets will enhance Level 3's business service portfolio as well as fill its fiber-fed pipe with traffic from Genuity's 3,000-plus customers.

In addition to maintaining the Genuity brand, Level 3 will acquire Genuity's Tier 1 network, its operations and its customer base, including its domestic contracts with America Online, Inc. and certain of its domestic contracts with Verizon, as well as a significant portion of Genuity's existing long-term operating agreements. Verizon will also continue to resell Genuity's services to its enterprise customers.

Genuity Chairman and Chief Executive Officer Paul R. Gudonis said that after Verizon bowed out of funding the company, it sought other financial solutions.

"Upon learning of Verizon's decision to relinquish its right to reintegrate Genuity, we sought a solution that would most benefit our creditors, our customers and our employees," Gudonis said.

James Q. Crowe, Level 3 chief executive officer, noted that Level 3 shares a complimentary line of business with Genuity.

"There is a unique and compelling fit between Genuity and Level 3," Crowe said. "The transaction combines the assets and operations of Genuity, the company that helped invent the Internet, with Level 3, the company that built the first network fully optimized for Internet Protocol-based communications."

Both companies are experienced providers of optical and IP-based services, and both are Tier 1 Internet backbone providers. Genuity's transport, dedicated services and dial-up Internet access business accounts for more than 80 percent the company's revenue.

As a routine matter of the acquisition process, ongoing employee compensation and benefit programs are being presented to the court for approval as part of the company's "first-day" motions. The company expects that the court will approve these requests at its first-day hearing, thereby ensuring that employees will be paid and that benefit programs will remain intact.

Vendors will be paid in the ordinary course for all goods furnished and services rendered subsequent to the filing. This protection afforded to vendors under the Bankruptcy Code, combined with the company's cash position, will ensure an uninterrupted flow of goods and services necessary to operate Genuity's business during this process.

In conjunction with the Chapter 11 filing and as required under Section 363 of the Code, Genuity also filed a motion for the establishment of bidding procedures for an auction that allows other qualified bidders to submit better offers for its assets. The company anticipates that the acquisition will be completed in the first quarter of 2003, pending approval of the bankruptcy court and certain government regulatory agencies.