Nortel to Buy Web Switch Firm Alteon in $7.3-Billion Deal
Nortel Networks Corp. continued its rapid-fire acquisition drive Friday with a stock deal valued at about $7.3 billion to buy Web switch developer Alteon WebSystems Inc.
Nortel, the world’s No. 2 network equipment supplier, said Alteon’s technology would help it build sophisticated communications systems that deliver content over the Internet at unprecedented levels of speed and reliability.
Investors were not too impressed, with Nortel shares falling $4.88 on the news to close at $73.63 on the New York Stock Exchange.
The market decline sent down the value of the deal, which was initially announced at $7.8 billion when calculated based on Nortel’s New York closing price of $78.63 on Thursday.
Brampton, Canada-based Nortel said it will offer Alteon shareholders 1.83 common shares for each Alteon share in the acquisition, which it expects to close in its fourth quarter.
Analysts pinned the stock’s slide largely on rate worries after the release of unexpectedly robust U.S. economic growth numbers, as well as the failure of talks on selling Nortel’s fiber-optic parts unit to Corning Inc.
Alteon shares sank $14, or 10%, to close at $129 on Nasdaq as investors reacted to the purchase price.
In combination with Alteon, Nortel said it can build next-generation Internet data centers--massive compounds of powerful communications gear such as servers, routers and storage--that are used to host Web sites or applications that run Internet commerce, trading and businesses.
San Jose-based Alteon develops switches that use sophisticated traffic control techniques to speed up the servers that feed data to networks and Web sites. “This takes all the stoplights and pretty well turns them green,” said Clarence Chandran, Nortel’s chief operating officer.
Alteon said it has more than half the market for switches that push content across networks. The company said International Data Corp. has estimated that the market will grow to more than $4 billion by 2004 from $203 million in 1999.
