Level 3 to Assume Certain Obligations And Pay $242 Million, Subject to Adjustments
Verizon, America Online, And Genuity Banks Sign Agreements With Level 3
Purchase to be Completed Through Genuity's Voluntary Chapter 11 Filing
BROOMFIELD, Colo., November 27, 2002 - Level 3 Communications, Inc. (Nasdaq:LVLT) and Genuity Inc. (Nasdaq:GENU) announced today that they have signed a definitive agreement under which Level 3 will acquire substantially all of the assets of the Massachusetts-based communications company.
Level 3 will pay up to $242 million in cash and assume a significant portion of existing long-term operating agreements to acquire Genuity's assets and operations. To facilitate the transaction, Genuity today is filing voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code. Level 3's cash consideration at closing could be reduced subject to certain material adjustments.
Closing expected first quarter 2003
Closing is expected to occur during the first quarter of 2003. The transaction is subject to approval by the bankruptcy court and certain government regulatory agencies.
"This transaction represents the best outcome for the key constituencies of both Genuity and Level 3," said Paul R. Gudonis, chairman and chief executive officer of Genuity. "Both companies, as well as Genuity's largest customers and creditors, have signed agreements supporting the transaction.
"We're particularly pleased that all of the key parties have come together in support of this acquisition. For Genuity's customers, the transaction will result in a stronger, financially sound, operationally reliable provider of communications services. For Genuity's business partners, the agreement will help ensure business relationships continue with the least possible disruption. And for employees, this transaction offers the maximum possible opportunity for the greatest number of people.
"Genuity has a long and proud history, and we know that Level 3 shares our vision of the future of fiber optics and IP communications. We look forward to continuing our work with the leadership team at Level 3 in the weeks ahead."
"There is a unique and compelling fit between Genuity and Level 3," said James Q. Crowe, Level 3's chief executive officer. "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 with industry-leading quality of service. 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.
"Level 3 and Genuity share cultures of technological excellence and innovation," said Crowe. "Genuity literally helped conceive the key technologies that underpin the Internet, while Level 3 has pioneered developments in softswitch technology and MPLS services, and revolutionized bandwidth provisioning with its ONTAP process. We believe that, together, we can build on that strong combined legacy."
Based in Woburn, Mass., Genuity operates an international IP network. The company provides dial-up and dedicated Internet access, transport, managed security and VPN, hosting and other services to communications companies, enterprises and government agencies. Its largest customers are Verizon Communications and America Online, which accounted for greater than 60 percent of its $223 million in revenue for the third quarter of 2002.
Key customers and banks sign agreements
All but one of Genuity's banks have signed an agreement in support of the transaction.
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.
"Verizon is very pleased to be entering into this partnership, under which Level 3 will become Verizon's primary supplier of backbone services," said Lawrence T. Babbio, vice chairman and president of Verizon. "We have been very pleased with the creativity and service brought to us by Level 3 in the past, and we look forward to this expanded relationship."
"This agreement will significantly expand our relationship with Verizon, one of the world's premier telecommunications carriers," said Charles C. Miller, vice chairman of Level 3. "Verizon is extremely sophisticated in building and operating advanced communications networks, and we are very pleased that they have chosen to incorporate Level 3's backbone services into those networks. After the transaction with Genuity, Level 3 will be a clear leader in supplying backbone services to carriers such as Verizon."
America Online has signed an agreement consenting to the transaction that contemplates Level 3 acquiring America Online's network services agreement with Genuity.
"America Online already has an important, longstanding relationship with Level 3," said Geraldine MacDonald, senior vice president for global access networks at America Online. "We are in support of this transaction, which provides us with the assurance of stability and a seamless continuation of service. We've been very pleased with the service Level 3 has provided in the past, and we look forward to a continuing positive relationship."
In addition, Allegiance Telecom Inc., Genuity's largest network supplier, supports the transaction.
"We have a longstanding and mutually beneficial relationship with Level 3," said Royce Holland, chairman and CEO of Allegiance Telecom, Inc. "We support this transaction and look forward to continuing our relationship with
Level 3 as the transaction moves forward."
New operating company to be formed
As part of this transaction, Level 3 is also acquiring Genuity's managed services business and its associated enterprise customers and product set. "We recognize the importance of these customers and are committed to ensuring they receive the highest quality service without disruption," said Kevin O'Hara, president and chief operating officer of Level 3. "As a result, we plan to combine these operations with those of our (i)Structure subsidiary in order to focus on the needs of those customers. That new managed services operating company will do business under the name 'Genuity,' a recognized leader in that market."
Transaction terms
Under the terms of the Level 3-Genuity agreement:
"Given the substantial similarities between the companies' strategic approach, service offerings and geographical reach, this transaction creates opportunities to increase sales while achieving significant cost efficiencies that the parties believe are unique," said Sureel Choksi, chief financial officer of Level 3. "It preserves Level 3's fully funded status, while accelerating the point in time when Level 3 expects to become free cash flow positive. The combined organization will be an industry leader with strength in growing markets, including IP access and backbone services."
Level 3's acquisition strategy
Crowe noted that the agreement with Genuity is consistent with Level 3's overall acquisition strategy. "As we have said in the past, we evaluate every potential acquisition according to its ability to generate positive cash flow from high credit quality customers," Crowe said. "We look for opportunities to acquire recurring revenues that come predominantly from services we already provide in geographic areas that we already serve, with customers consistent with our existing customer base. Above all, we are committed to remaining fully funded to free cash flow breakeven and improving our financial position. Our agreement with Genuity meets all of these key criteria.
"We look forward to working together to close this transaction and have the support of the key parties involved. At the same time, as with any acquisition, there is a risk that the Genuity transaction may not be completed, and we continue to analyze and consider other opportunities."
Level 3 will hold a conference call to discuss today's announcement on Monday, December 2, at 11 a.m. eastern time. To join the call, please dial 612-326-1003. A live broadcast of the call can also be heard on Level 3's web site at www.Level3.com. An audio replay of the call will also be accessible through the web site or by dialing 320-365-3844 - Access Code 662298.
About Level 3 Communications
Level 3 Communications, Inc. (NASDAQ: LVLT), an international communications company, operates one of the largest Internet backbones in the world, connecting 180 markets in 18 countries. The company serves a broad range of wholesale, enterprise and content customers with a comprehensive suite of services including: Internet Protocol (IP) services, broadband transport and infrastructure services, colocation services, voice and voice over IP services, content delivery and media distribution services. These services provide the building blocks to enable Level 3’s customers to meet their growing demands for advanced communications solutions. The company’s Web address is www.Level3.com.
"Level 3 Communications,” "Level 3," the red 3D brackets and the Level 3 Communications logo are registered service marks of Level 3 Communications, LLC in the United States and/or other countries. Level 3 services are provided by wholly owned subsidiaries of Level 3 Communications, Inc. Any other service, product or company names recited herein may be trademarks or service marks of their respective owners.
Forward-Looking Statement
Some of the statements that we make in this press release are forward looking in nature. These statements are based on management’s current expectations or beliefs. These forward looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside our control, which could cause actual events to differ materially from those expressed or implied by the statements. The most important factors that could prevent us from achieving our stated goals include, but are not limited to our ability to: successfully integrate acquisitions; increase the volume of traffic on our network; defend our intellectual property and proprietary rights; develop new products and services that meet customer demands and generate acceptable margins; successfully complete commercial testing of new technology and information systems to support new products and services; attract and retain qualified management and other personnel; and meet all of the terms and conditions of our debt obligations. Additional information concerning these and other important factors can be found within Level 3’s filings with the Securities and Exchange Commission. Statements in this press release should be evaluated in light of these important factors. Level 3 is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.
