|
NEW YORK (Reuters) - Local telephone company Verizon Communications said on Wednesday it canceled its $800 million agreement to buy a 55-percent stake in NorthPoint Communications Group (NPNTQ) Inc. due to the recent deterioration in the high-speed Internet access company's finances.
Verizon (VZ) agreed in August to purchase a controlling stake in NorthPoint and merge the companies' digital subscriber line (DSL) businesses. DSL technology provides high-speed Internet access over copper telephone wires.
The deal would have helped the companies accelerate their DSL expansion plans. Verizon would have benefited from NorthPoint's geographic reach and business clients, while NorthPoint would have gotten an infusion of cash.
The fate of the deal was called into question earlier this month when NorthPoint (NPNT) restated its third-quarter financial results after it discovered some of its customers may not have the money to pay for services.
"NorthPoint recently reported a continuing decline in revenues, an erosion of its customer base, an increase in expenses due to write-offs for increased bad debt, and, as a result, a material increase in net losses," Verizon said.
Due to that "material adverse change," Verizon canceled the merger pact. Verizon said it will not have to pay a break-up fee to end the deal. NorthPoint could not be immediately reached for comment.
NorthPoint's stock has dropped in recent weeks amid concerns about the Verizon deal, the weak financial health of its customers and a general decline in the telecommunications sector.
Shares of New York-based Verizon gained 1/2 to $55-1/2 on the New York Stock Exchange (dossier). Shares of San Francisco-based NorthPoint fell 3/32, or nearly 5 percent, to $2 on Nasdaq. That stock has fallen 92 percent this year.
NorthPoint's market capitalization stands at about $266 million, well below its $1.9 billion market capitalization in August when the deal was announced. Verizon, meanwhile, had agreed to pay $800 million for just 55 percent of the company.
Verizon in September gave NorthPoint $150 million in cash in exchange for convertible preferred stock, but it said it has no obligation to arrange for NorthPoint to receive additional financing.
Verizon declined to comment if it would take a charge related to the terminated merger. It said it would discuss on Thursday the financial impact of cancellation. At that time, it also will discuss its plans to expand beyond its home territory.
Other wholesale DSL providers besides NorthPoint have suffered from customers' financial problems. Covad Communications Group (COVD) Inc. (COVD) recently revised downward its third-quarter results due to lack of payment by several Internet service provider customers.
Analysts have said that data companies such as Rhythms NetConnections (dossier) Inc. (RTHM) and Mpower Communications Corp. (MPWR) also could be hurt by financial problems at their Internet Service Provider customers.
Some small ISPs are suffering from increased competition and tough capital markets, which make it harder for them to raise cash to maintain and expand their businesses.
Copyright 2000, Reuters News Service
| 