Strategy for consolidating Nortel's WAN Passport with Bay's LAN products
Nortel And Bay Complete Merger, Form Network
( 9/11/98; 11:00 AM EST)
By , InformationWeek
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(09/01/98; 9:00 a.m. ET)
Nortel And Bay Complete Merger, Form Networking Units
Stuart J. Johnston
Northern Telecom Ltd. and Bay Networks Inc. completed their merger today just 75 days after they initiated it, and began laying out the new
Nortel's plans for combining voice and data networks.
The new company folded Nortel's corporate networking unit into Bay's unit under former Bay CEO and new Nortel president Dave House,
creating an 8,000-employee enterprise-data business worth $3.5 billion to $4 billion.
One of the first benefits of the new business will be combining Nortel's WAN Passport product line with Bay's LAN products. Passport's frame
and cell capabilities will let customers blend WAN and LAN technologies. "Both of us prior to the merger were somewhat handicapped in our
efforts to meet customer needs, because we each had only half of the solution," says Nortel CEO John Roth. The company says it will also begin
work on networking applications such as multimedia call centers.
Nortel also formed a new unit, to be based in Boston, that will focus on packet-switching technology for carrier customers. It will have 5,500 to
6,000 employees and roughly $2.5 billion in revenue. Bay's House says that the opportunity to bring packet switching to telecom networks was
one of the reasons it agreed to the Nortel merger. "We were searching for an opportunity to access that market. Although we had the technology,
we didn't have the access to those customers," he says.
Another area in which the two companies will converge is in wireless communications, where the Bay enterprise-data staff will collaborate with
Nortel's fast-growing wireless unit to expand the support for data traffic over wireless networks.
The new Nortel will have 80,000 employees. Roth anticipates that Nortel will maintain growth rates in the mid-teens to high-teens for the rest of
the year, with better growth expected next year, partly due to Bay's higher growth rates.
Roth says that the value of the acquisition, which closed yesterday, was lowered by the day's precipitous stock market drop. It was intended to be
a $9 billion deal, but after the stock fall yesterday it was worth about $7 billion.
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