Level 3 Communications Inc said it has agreed to pay up to $242m for most of rival Genuity Inc, the ailing data communications firm, in a deal that will require Genuity, laboring under almost $4bn of debt, to file for Chapter 11 bankruptcy protection,

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While many key Genuity stakeholders have approved the acquisition, one major creditor has not, and the bankruptcy court process allows for other bidders to step in with offers that could trump Level 3's bid. Court and regulatory approval is also required.

Level 3, which wants to increase its reach into the market for providing Internet services to enterprises, said it will take over a "significant portion" of Genuity's customers, and will continue to operate the business under the Genuity brand.

"This transaction represents the best outcome for all the key constituencies of both Genuity and Level 3," said Genuity CEO Paul Gudonis. "Both companies, as well as Genuity's largest customers and creditors, have signed agreements supporting the transaction."

Employees and Genuity shareholders will evidently have the most to complain about. All the $242m cash, plus whatever's left on Genuity's balance sheet when the transaction closes, will go to Genuity's creditors - a banking consortium and Verizon Communications.

Layoffs seem inevitable. There is a lot of crossover between the markets the companies service. For employees, Gudonis said the deal "offers the maximum possible opportunity for the greatest number of people." Genuity is headquartered in Woburn, Massachusetts, and has many global offices.

Level 3 has seen itself as the industry consolidator since July, when it received $500m from a consortium of investors led by billionaire Warren Buffet. Added to its $1bn cash pile, Level 3 found itself in a position to make acquisitions when rivals were declaring bankruptcy and going for a song.

Genuity is one such case. The firm has been fighting off its creditors since July, when it defaulted on over $3bn in loans from Verizon and its bank lenders after Verizon, also a major shareholder, declined to continue to fund the company by buying a majority stake. A question mark has hung over the firm since.

Level 3 CEO James Crowe said: "As with any acquisition, there is a risk that the Genuity transaction may not be completed, and we continue to analyze and consider other opportunities." Genuity said one of its banks, which it did not name, does not support the acquisition, leaving open the possibility the deal will be challenged.

If Level 3 manages to finalize the acquisition, which seems plausible given the apparently limited opposition and limited supply of potential counter-bidders, it will take over a number of important contracts. Before revealing the acquisition, the company made efforts to ensure major Genuity customers would stick around after it closes.

Verizon will continue to buy services from Genuity after the acquisition, and America Online Inc, which buys a portion of its network capacity from the company, has also agreed to continue to work with the firm. Together, these two firms brought in more than half of Genuity's revenue in its last quarter, Reuters reported.

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