NorthPoint Punishes Verizon with Legal Action

NorthPoint Communications Group Inc. Friday filed a threatened lawsuit against Verizon Communications Inc. in an attempt to force Verizon to either revive a digital subscriber line (DSL) merger deal it killed last week or pay NorthPoint damages of up to US$1 billion.

The suit was filed in California Superior Court in San Francisco just a day after NorthPoint announced a 19 percent workforce reduction, a move that it said was primarily driven by Verizon's termination of the August deal between the two companies.

The agreement would have merged Verizon's DSL business into NorthPoint and given the struggling provider of DSL services an $800 million cash infusion. But New York-based Verizon last week said it was terminating the deal because of a "deterioration in NorthPoint's business, operations and financial condition" since the agreement was signed.

NorthPoint CEO Liz Fetter immediately threatened legal action against Verizon. And in a statement issued Friday, she said officials at San Francisco-based NorthPoint "believe we have a strong case and a good probability of success." The company's suit claims the termination was without legal or factual basis and was merely an attempt by Verizon to avoid its investment obligations.

But Verizon spokesman Peter Thonis said allegations by NorthPoint that Verizon killed the deal in order to increase the value of its stock are "ludicrous and silly."

"The sole reason we terminated the agreement was the deterioration of their business," Thonis said. "It had nothing to do with anyone's stock price, just their business and financial condition." He added that Verizon has already filed suit against NorthPoint in Delaware courts, seeking a ruling that validates the termination as well as the return of US$200 million in interim financing that Verizon had provided.

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