Verizon Leaves NorthPoint At The Altar.(Verizon Communications)(Company Business and Marketing) Issue: Dec 1, 2000

How does it feel to be young, jilted and desperate for cash? High-speed Internet provider NorthPoint Communications Group [NPNT] knows only too well.

The San Francisco-based startup is feeling more than heartbroken over Verizon Communications' [VZ] Tuesday decision to terminate plans to purchase a controlling interest in NorthPoint - it's downright mad.

"I am stunned to get the news after months of conversation with Verizon on the strong business opportunities available to the combined entities," said Liz Fetter, president and CEO of NorthPoint, in a statement. "Verizon was not entitled to terminate these agreements, and we are exploring all our options, including funding options and legal remedies."

In other words, this breakup could get messy.

Verizon nixed the $800 million nuptials because of "deterioration in NorthPoint's business, operations and financial condition" since the deal was proposed in August. NorthPoint's latest financial disclosures show a company in dire need of cash flow that also is losing customers. It announced last week that third-quarter earnings were actually lower than originally reported. The company said customers defaulting on bills caused the lower numbers.

Verizon said its obligation to complete the merger was based on NorthPoint "remaining materially the same as they were at the time the agreement was signed." Since NorthPoint has endured "material adverse change," Verizon said it has every right to opt out of the deal.

NorthPoint shares plummeted 70.3 percent yesterday on the New York Stock Exchange to finish at 19/32. The company's 52-week high for the year was 34 3/4, while its low was 1. Verizon shares increased .7 percent to finish at 56 3/16. Its 52-week high was 67 3/16, while its low was 39 1/16.

The Bottom Line

Hell hath no fury like a struggling, high-speed Internet provider that's been scorned, or something like that. NorthPoint should have seen this coming. Verizon would have been a joke on Wall Street if it had said "I do" to this stinker of a deal. Why should Verizon pay more than twice NorthPoint's market value for only a bit over half of a company whose stock value has fallen 90 percent plus this year?

For NorthPoint, this could be a deathblow. The company, along with DSL-brethren Covad Communications [COVD] and Rhythms NetConnections [RTHM], are fighting for their lives as Wall Street has become more concerned with profit than potential, and the Bells continue to gobble up the DSL market. Also, many analysts are skeptical that NorthPoint has enough cash on hand to make it through 2001. But as many deserted brides and grooms have learned the hard way: you can't force someone to love you.

COPYRIGHT 2000 Phillips Publishing International, Inc.

COPYRIGHT 2001 Gale Group