Genuity price tag may fluctuate

Level 3 Communications may end up paying millions less for the assets of bankrupt wholesale and enterprise service provider Genuity than previously announced.

Last Wednesday, Level 3 announced that it had come to an agreement to purchase substantially all of the assets of Genuity for $242 million. As part of the agreement Genuity filed for bankruptcy protection. Genuity’s two top customers, AOL and Verizon, have expressed support for a purchase by Level 3 and all but one of Genuity’s banks back the deal.

The purchase agreement, though, contains several stipulations that could raise or lower the value of the deal.

One of the main variables in the final purchase price will be the value of Genuity contracts Level 3 assumes, many of which are deals for outsourced network services that Genuity resold to customers.

“Generally speaking in accordance with the agreement, the greater the dollar value of agreements assumed by Level 3, the lower the cash purchase price payable by Level 3,” said Sureel Choksi, the company’s chief financial officer. “The $242 million purchase price is premised on Level 3 assuming the least amount of Genuity’s operating agreements permitted under the purchase agreement.”

The purchase price will decline 27 cents for every dollar in contracts the company assumes above the minimum, up to $65 million, he said.

There are other factors that could affect the final value of the agreement as well. Generally speaking, said Choksi, the later the closing date the lower the price. In addition, if at Genuity’s revenue run rate at closing is higher or lower than anticipated, Level 3’s payment will rise or fall, respectively.

According to James Crowe, Level 3’s CEO, the company was attempting to strike a balance between a number of parties by agreeing to assume some of these deals,.

“We have to balance the interest of nine banks, Verizon, Genuity, and a series of suppliers who have contractual arraignments with Genuity and would become creditors if those contracts were rejected,” he said.