Genuity Agrees to Sell Assets to Level 3

Genuity Inc., a high-speed Internet service provider, said Wednesday that it filed for bankruptcy protection and agreed to sell its assets for about $242 million to Level 3 Communications Inc., a rival backed by billionaire investor Warren Buffett.

Level 3, based in Broomfield, Colo., recently got an infusion of $500 million in funding from a group led by Buffett and has made no secret of its interest in using that money to fund acquisitions.

With the Genuity deal, Level 3, a high-speed communications company, would gain Internet access services, more than 3,000 customers such as America Online Inc., and one of the oldest pedigrees in the industry. In 1969, Genuity’s predecessor, BBN Corp., designed and helped build Arpanet, the basis for today’s Internet.

Genuity, which provides data transmission, Internet access and security services and Web site hosting, is the latest communications company to buckle under the weak economy, slim demand from corporate customers and a glut of high-speed network capacity.

Woburn, Mass.-based Genuity defaulted on its debt in July after Verizon Communications Inc., its former parent company, decided not to rescue the money-losing company. Verizon was forced to spin off Genuity as a condition of the merger of Bell Atlantic Corp. and GTE Corp., which created Verizon in 2000.

Genuity, which has been in talks for several months to renegotiate the terms of its debts, has $1.9 billion in assets and $4 billion in debts, according to the Chapter 11 filing in the U.S. District Court for the Southern District of New York.

Genuity’s creditors would receive the money Level 3 pays for Genuity’s assets, as well as additional cash on Genuity’s balance sheet after the close of the transaction.

With more than $800 million in cash to fund the company’s operations, Genuity said it would continue to operate without interruption during the transitional period.

Level 3 said the deal would preserve its fully funded status. It said the similarities between service offerings and geographical reach would allow it to cut costs and increase sales.

Analysts expect other communications network operators to merge as the industry grapples with an abundance of capacity and weak demand.

Level 3 and Genuity expect the deal to close in the first quarter of 2003, pending Bankruptcy Court approval. Under the bankruptcy proceedings, a new suitor could emerge during an auction of Genuity’s assets.

Level 3 would acquire Genuity’s brand name, its high-speed data network and operations and its customer base, including lucrative accounts with Verizon and America Online.

Shares of Genuity fell 20 cents to 26 cents, and Level 3 rose 41 cents to $5.60, both on Nasdaq.