Nortel Networks will acquire Alteon WebSystems in a stock deal worth $7.8bn.
The acquisition would be Nortel's largest to date. The acquisition would be a big boost to its position in the content switching market, which research firm IDC predicts will hit $4bn by 2004.
The deal calls for each Alteon share to be exchanged for 1.83148 shares of Nortel stock. The acquisition is not expected to be a hit on earnings during calendar year 2000, and is expected to boost the earnings per share from operations beginning in calendar year 2001. The deal should close in the fourth quarter.
Nortel would include Alteon's content aware switching products in its services offerings for storage, gigabit switches, and hosted application management and delivery.
The Nortel pairing had been rumoured, particularly after Cisco Systems acquisition of ArrowPoint Communications. Both companies make switches that help Web sites route requests for content or transactions to network servers best able to handle the requests.
Alteon is solidly in the black. The company blew past analysts' estimates in its fourth quarter Thursday, earning $7.4m, or 16 cents a share, on record sales of $51.5m. First Call consensus expected it to earn three cents a share in the quarter.
Nortel also topped estimates in its latest quarter and raised it growth projections. The provider of networking components and equipment reported second quarter net income of $561m, or 18 cents per share, excluding special charges and one-time events. First Call's survey of 31 analysts predicted a profit of 15 cents per share.
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