A Business article on Nov. 8 gave an incomplete description of the financing behind local telecommunications firm Velocita. Koch Investments was among Velocita's investors, but it did not provide the bulk of the financing. (Published 11/16/02)
A bankruptcy judge yesterday approved AT&T Corp.'s purchase of Velocita Corp.'s assets for $37 million in cash and stock, giving the nation's biggest long-distance company a new national fiber-optic network and effectively closing Falls Church-based Velocita.
As part of the deal, which is to close today, AT&T will acquire Velocita's network for $2 million in cash plus $35 million in stock. The 20,000-mile network is about 90 percent complete, and AT&T will build the rest.
The deal is a bargain for AT&T, which had planned to pay much more for the network Velocita built. AT&T, which was Velocita's biggest customer, hired Velocita to construct its "next generation" fiber-optic network for $350 million over several years. Instead, by buying Velocita's assets out of bankruptcy, the company is getting more than what it bargained for, for far less.
Velocita and AT&T officials declined to comment on the deal, citing confidentiality agreements.
Velocita, a privately funded firm founded in 1998 as PF.Net Communications Inc., filed for bankruptcy protection in June, listing $827 million in debt and $482.8 million in assets. It was unable to secure funding to operate in bankruptcy, so last month the U.S. Bankruptcy Court in New Jersey authorized the company to sell its assets.
Velocita was funded with $1 billion, including about $800 million from Koch Investments and Odyssey Venture Partners. It planned to go public and attracted Robert Annunziata, former president of AT&T's Business Services Group, to be its chairman.
Beginning about two years ago, an industry collapse shut down investment in telecommunications companies. There were many companies that had laid more fiber-optic cable than the market demanded, causing the value of Velocita's products to fall.
Velocita's chief executive, Kirby G. "Buddy" Pickle, tried to reorganize the company and start selling services in addition to just the pipeline. But the market continued to get worse for Velocita, after other carriers such as 360networks Inc. and Global Crossing Ltd. filed for bankruptcy and the value of their assets fell precipitously.
Velocita, which once had 243 employees and 60 customers, will continue to operate for the next few months, employing 10 to 15 people. It will pursue a breach-of-contract lawsuit it filed in August against Lucent Technologies Inc., a source close to the company said.