NorthPoint, Verizon go separate ways

A day after walking away from the DSL merger with NorthPoint, Verizon Communications raised its earnings estimates for 2001 and 2002, while NorthPoint was still reeling from the loss of $800 million in funding and a key partner.

As NorthPoint stock plummeted to below $1 per share, the company held an abrupt conference call that provided scant information regarding its impending funding shortage. The company did say that as of September 30 it had cash and cash equivalents totaling about $150 million, and had begun discussions with its bank syndicate to tap the undrawn $155 million of its existing credit facility.

Verizon said it would retain its $150 million in NorthPoint convertible preferred stock, but would not pay the $100 million break-up fee or $200 million in interim financing scheduled for January.

“Now that [NorthPoint] has lost [Verizon] as a source of funding, we are extremely concerned regarding the ongoing viability of the company, as we forecast that [NorthPoint] has, at most, enough cash and available funding sources to last into [first quarter 2001],” said a report by Mark Kastan of Credit Suisse First Boston.

With the expected earnings dilution from the NorthPoint combination out of the way, Verizon said it expected 2001 profits to grow 8%, two to three percentage points higher than previously forecast. Earnings for 2002 will rise about half a percentage point.

Verizon Chief Financial Officer Fred Salerno said the termination of the deal would add back 12¢ per share in 2001, 7¢ of which Verizon plans to “float” to the bottom line. The remaining portion will be plowed back into out-of-region data initiatives and in-region DSL deployment. For 2001, Verizon will recover 13¢, 8¢ of which will be added back to profits, Salerno said.

For the fourth quarter of 2000, Verizon will take a one-time charge reflecting the decline in value of its $150 million NorthPoint investment. Excluding the charge, Verizon projects earnings to be in the range of 76¢ to 78¢ a share.

The breakup of the NorthPoint deal does hold a negative for Verizon: the carrier will have to look to its acquisition of MTU provider OnePoint Communications and its ownership stakes in Metromedia Fiber Network and Genuity to expand its voice, data and high-speed Internet access offerings outside its territory. Verizon agreed to do so to gain regulatory approval for the Bell Atlantic-GTE merger.

On the consumer front, Verizon said it remains on a path to exceed its end-of-year goal of 500,000 DSL customers, said Vice Chairman Larry Babbio. Verizon’s daily install rate is 3500, 90% of which are self-installations.