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July 26, 2002
WOBURN, Mass. -- Genuity Inc. today announced that on Wednesday, July 24, 2002, at the close of business, Verizon Communications informed Genuity that it would convert all but one of its Class B shares of Genuity common stock into Class A shares, effectively relinquishing its right to acquire a controlling interest in Genuity. Verizon's conversion of its Genuity shares gives them just under 10 percent of Genuity's capital stock with 90 percent now owned by the public. Verizon's decision resulted in a default under Genuity's credit facility with Verizon and its credit facility with a consortium of banks. Genuity indicated it is in discussions with the banks and Verizon to review the impact of these events on the agreements. "Verizon's decision to cancel its option to integrate Genuity and its credit agreement was unexpected and a disappointment to us," said Paul R. Gudonis, chairman and CEO of Genuity. "Fortunately, our management and Board of Directors had made the sound business decision earlier in the week, prior to learning of Verizon's intentions, that in this turbulent economic and business environment, it was in the best interest of our customers and shareholders to increase our cash on hand." Genuity announced that it previously had drawn down an additional $723 million under the credit facility with the banks, bringing its cash on hand to approximately $1.3 billion. Gudonis added, "We are disappointed with this decision given the fact that we have consistently operated the company in the best interest of all involved, including Verizon. We have cut costs, improved efficiencies and hit our financial targets on a path to profitability. We clearly were taking the steps that Verizon had publicly indicated would lead them to re-integrating Genuity. "Regardless of Verizon's position, we intend to continue to operate our business effectively and provide our customers with the high-quality services they've come to expect from us. In fact, Verizon is still one of our largest customers and we will continue to maintain our relationship with them. Verizon has indicated they intend to honor their $500 million "take or pay" commitment for the purchase of Genuity's services. They will also continue to resell Genuity's enterprise IP networking services. "We believe we have a valuable set of assets in our Tier 1 network, our hosting data centers, and, most of all, our highly skilled employees. Now that Verizon has elected not to reintegrate Genuity, we will evaluate all of our options, which could include seeking another strategic partner or restructuring our operating plan while we address this situation." Genuity Inc.Verizon Communications Inc.
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