Source: Daily Deal
 
Level 3 Communications Inc. ended weeks of speculation just before the holiday weekend by announcing that it will acquire nearly all of Genuity Inc.'s assets for up to $242 million in cash and assume significant operating agreements.
 
Woburn, Mass.-based Genuity filed for Chapter 11 protection in the Southern District of New York in conjunction with the deal and said that all but one of its banks and major customers, including former parent Verizon Communications, support the transaction.
 
Level 3's payment and all of the cash on Genuity's balance sheet will be distributed among the company's creditors. Closing is expected in the first quarter of 2003.
 
Genuity has received a string of extensions from its lenders, since it defaulted on $3.2 billion in loans to banks led by J.P. Morgan and Verizon. The company was forced into negotiations after Verizon decided to relinquish an option to acquire a controlling stake in Genuity.
 
Industry observers have been waiting for Level 3 to acquire something since July when the Broomfield, Colo.-based telecom received a $500 million infusion from a group of investors including Warren Buffett's Berkshire Hathaway Inc., Longleaf Partners Funds and Legg Mason Inc.
 
Level 3 made an unsuccessful bid for WilTel Communications Inc., formerly Williams Communications, when the company was in bankruptcy protection.
 
Analysts have speculated that Level 3 was attracted by Genuity's contracts with America Online, the Internet unit of AOL Time Warner Inc.
 
"If Level 3 is able to consolidate Genuity, it could allow the next-generation network operator to build critical mass, acquire a Tier I Internet backbone, gain valuable enterprise customers, and possibly cement a stronger relationship with Verizon," Kaufman Bros. analyst Vik Grover said in a recent research note.
 
Lazard advised Genuity in the deal. Miller Buckfire Lewis & Co. LLC advised Level 3. J. Gregory Milmoe of Skadden, Arps, Slate, Meagher & Flom LLP is representing Genuity in its bankruptcy proceedings. The case has been assigned to U.S. Bankruptcy Judge Prudence Carter Beatty.
 
Genuity's statements of financial affairs and executory contracts are due Dec. 12; its disclosure statement is due March 27, 2003.