NEW YORK (AP) — Verizon Communications, battling a major strike and disappointing profits, announced plans Tuesday to merge its DSL operations with NorthPoint Communications Group, an upstart provider of the high-speed Internet service.
The deal, unveiled as a potentially ruinous strike by 87,200 Verizon employees entered a third day, came as Verizon posted second-quarter results below Wall Street forecasts and warned of more profit struggles next year.
Talks between two unions and Verizon, the company formed in June by the merger of Bell Atlantic and GTE, snagged over job-security issues on Monday, but were expected to resume on Tuesday. The strike affects 25 million local phone customers in 12 states and Washington D.C.
In morning trading on the New York Stock Exchange, shares of Verizon slid $4.38 to $43.50, a loss of 9 percent. NorthPoint was up $1.13 per share, or 7.5 percent, at $16.13 on the NASDAQ Stock Market.
The new alliance with NorthPoint, similar to one formed between Prodigy and Verizon rival SBC Communications, will make NorthPoint the primary provider of high-speed Internet access for Verizon.
Of the $800 million investment, $450 million will be used to fund the new NorthPoint's network expansion. NorthPoint shareholders will receive the other $350 million, or about $2.50 per share. Afterwards, they will own 45 percent of the new NorthPoint entity.
Together, Verizon and NorthPoint serve more than 600,000 DSL lines over an area with 63 million homes and businesses.
"This deal combines complementary assets — Verizon's position in the consumer market and NorthPoint's presence with business customers — to provide the scale to fuel growth and deliver the full benefits of high-speed connections," said Lawrence T. Babbio, Verizon vice chairman and president. "The new company will expand broadband choice for customers, providing a superior alternative to cable."
Liz Fetter, NorthPoint president and chief executive, will continue to lead NorthPoint as CEO after the merger.