From the wall street journal:
An INTERACTIVE JOURNAL News Roundup
Cabletron Systems Inc. agreed late Wednesday to buy well-regarded start-up Yago Systems Inc. in a stock deal intended to shore up Cabletron's slumping share of the white-hot market for networking equipment.
Under terms of the agreement, Cabletron, of Rochester, N.H., will issue 6.1 million shares of stock to the shareholders of Yago in exchange for the approximately 75% of Yago's stock that Cabletron doesn't already own. Cabletron said it has agreed to issue up to an additional 5.5 million shares of its stock to the former shareholders of Yago in the event that the shares originally issued in the transaction do not attain a market value of $35 a share 18 months after the closing of the acquisition. If the shares don't hit the $35 target, that would value the stock deal at $168.2 million, based on Cabletron's stock price of $14.50 late Wednesday.
Yago -- the name is said to stand for Yet Another Gigabit Organization --has been rumored as an acquisition target for months, with networking heavyweights Cabletron and Cisco Systems Inc. seen as the most likely suitors.
The company makes advanced routing devices that combine switching
technology and are faster and less expensive than traditional routers.
Cabletron already owns a small stake in Yago, and the company has been
active on the acquisition front, agreeing in November to buy Digital
Equipment Corp.'s networking unit for $430 million. Moreover, Cabletron Chief Executive Donald Reed had made no secret of the company's desire to make other acquisitions. Cabletron has been trying to keep its place among the nation's top networking companies but has been losing market share to fast-growing rivals, including market leader Cisco. Last month, Cabletron said it would lay off 600 people, nearly 10% of its work force, and close several manufacturing facilities as part of a restructuring plan. The company has been criticized for its overreliance on direct sales, especially as larger rivals,including Cisco and 3Com Corp., have captured market share by using resellers.
Cabletron rivals have profited by focusing on networking "switches," which can deliver data more efficiently than the "router" technology embraced by Cabletron. The Digital business boasts high-end switching gear but analysts have said Cabletron needs to make more moves.
Routers are widely used devices that translate messages from one network format to another, while switches -- to which the industry is rapidly moving -- use more advanced technology. Yago, in industry parlance, is a "layer 3" switch maker. These types of switches act as routers, forwarding packets of data usually via the Internet Protocol format. Yago's technology combines some of the aspects of speedy gigabit-networking formats, routers and ordinary switches.
Cabletron last year also purchased a small stake in Ipsilon Networks Inc., the pioneer of a networking-technology effort called IP switching. In December, Finnish telecommunications company Nokia announced plans to acquire Ipsilon for $120 million. Many companies developing gigabit-speed products have been snapped up by big companies. The technology allows computers to exchange data at
100 times the speed of conventional networks without costing a great deal more money. Lucent Technologies Inc. recently announced plans to buy gigabit concern Prominet Corp. in a $200 million deal. Bay Networks Inc., a rival of Cisco and Cabletron, last summer agreed to acquire Rapid City Communications, a gigabit start-up for about $155 million in stock.
In 1996, Cisco acquired Granite Systems Inc., one of the first gigabit
companies, for $220 million. Sun Microsystems Inc. and Silicon Graphics Inc. have struck deals with smaller gigabit Ethernet start-ups, such as Alteon Networks Inc. So many gigabit Ethernet start-ups have emerged, nearly two dozen at last count, that a slang term has popped up in Silicon Valley --JAGS, or just another gigabit start-up.
Shares of Cabletron were up $1.0625 at $14.50 in late trading on the New York Stock Exchange Wednesday. The deal was announced after the close of trading. |
