Newbridge to acquire Castleton
affiliate
James Bagnall
The Ottawa Citizen
In a move designed to extend the range of its own products, Newbridge
Networks Corp. said yesterday it will acquire one of its affiliates, Castleton
Network Systems Corp. of Burnaby, B.C.
Castleton was founded only three years ago by former B.C. Tel engineer,
Greg Celmainis but is obviously considered strategic to Newbridge's future. It
specializes in products that allow voice and fax signals to be transported over
a variety of data networks, including the Internet.
More to the point, Castleton develops technology that directly connects
enterprises and home businesses to data networks, including those run by
telephone companies. In the industry, this is known as the access market and
Newbridge wants to be a key player. Newbridge's chief operating officer
Alan Lutz said recently he wants to build a $1-billion-a-year access business
to complement Newbridge's main product line, a family of switching devices.
"The more we looked at this," said Mr. Celmainis, "the more it became
evident Castleton and Newbridge should be more tightly integrated. That's
what competitors like Northern Telecom and Cisco Systems are doing."
Mr. Celmainis, 32, would not disclose the price of the transaction. However,
he noted the deal was triggered by Castleton's recent hunt for venture capital
financing.
"I won't say we didn't have offers, but a large part of our value and strategy
was in working with Newbridge," said Mr. Celmainis, who worked as a
senior design engineer at Newbridge in Kanata until 1995.
Newbridge already owns 30 per cent of Castleton. Newbridge chairman
Terence Matthews controls another 30 per cent through his personal venture
capital firm, Celtic House International. Institutional investors, including
Altamira, own about 10 per cent, with the remaining shares held by
Castleton's 110 employees. Although the firm is headquartered in B.C., about
40 per cent of its workers are in Kanata. Mr. Celmainis said he owns less
than five per cent of the firm he founded.
This marks the first time Newbridge has opted for full control of one of its 21
affiliates. These are companies in which Newbridge holds a significant
minority ownership stake -- usually about 33 per cent. Many are now
reaching maturity, in the process presenting Newbridge with three basic
options when considering how to increase the value of its investment.
One is to encourage the affiliate to go public. Kanata-based CrossKeys
Systems Corp. was the first to do so last December, and at least three more
are expected to do so before spring. Kanata-based Tundra Semiconductor
Corp., TimeStep Corp. and ACC Corp. of Santa Barbara, California, are
considered top candidates, though Kanata-based Cambrian Systems Corp.
could surprise everyone with an early and significant initial public offering.
The second option for Newbridge is simply to sell its ownership position in an
affiliate to a third party. Newbridge hasn't done this with an affiliate, although
it has sold relatively small equity stakes to competitors. For example,
Newbridge or Celtic House sold pieces of Broadband Networks Inc. of
Winnipeg and Skystone Systems Corp. of Nepean to Nortel and Cisco
respectively. In each case, Newbridge reaped a considerable profit on its
original investment.
The third way to deal with its affiliates is to buy them outright, as with
Castleton. In this case, there is a direct cost to Newbridge in the form of a
cash or stock payment. But Newbridge then gains full control over the
affiliate's research efforts.
BancAmerica Robertson Stephens analyst Paul Silverstein estimated in early
summer that Newbridge's collective equity stakes in its affiliates were worth
more than $500 million. This compares with the $85 million U.S. cost of
Newbridge's initial and follow-on investments.
Regards
Glenn |
