Internet service provider PSINet Inc has been ordered to pay $49m in damages arising from a joint venture in Europe that failed. In September 1996 PSINet hooked up with the Chatterjee Management Co, an investment firm owned by George Soros’ Soros Fund Management LLC to finance PSINet’s launch in Europe.
However the deal was never finalized and Chatterjee sought compensation. It went to an arbitrator assigned by the International Chamber of Commerce in London, who came up with the figure. We reported at the time that the whole deal was worth $100m, so it was most likely a 50-50 joint venture. The failed deal pushed back the company’s entry into Europe until 1998 and in January this year it closed a long-term acquisition of STM-1 fiber optic capacity from various carriers in Europe, representing a 21,000-km network linking 30 major cities.
The damages will be borne as a charge against 1998 earnings of 98 cents per diluted share, which may require PSINet to restate its 1998 figures, which were net losses of $212.9m, or $4.34 per share, after $70.9m in charges for acquired research and development, on revenues of $259.6m. The company emphasized that this ruling will not affect earnings for the current fiscal, which will actually be losses at the net level.
The Herndon, Virginia-based company observed that there is very little room for appeal in such decisions. It could have been worse, as one of the compensatory packages Chatterjee requested would have given it a stake in PSINet’s European operations.
