and an excerpt from CSFB's note today on NT's acquisition of Shasta:
Northern Telecom announced it will acquire privately-held
Shasta Networks, a provider of intelligent IP networking
systems, in a transaction valued at $340 million, which
consists of $318 million in Nortel stock and up to $22
million in cash. The cash payment is contingent upon Shasta
achieving certain business targets. We view this employee
incentive as key for Nortel achieving a satisfactory return
on its investment. The deal is expected to close in 30 days
and will be accounted for as a purchase. Nortel management
estimates the acquisition will be neutral to earnings in 1999 and
accretive in 2000.
Shasta's product platform will serve as a vehicle for
enabling managed IP services, such as virtual private
networks (VPNs), managed firewalls and QoS policies. The
Shasta Subscriber Service System (SSS) is a modular, carrier-
grade, integrated hardware and software platform capable of
scaling to 160,000 subscribers. The architecture will give
carriers the ability to provision channels dynamically in
response to customers' bandwidth demands, as well as set up
service-level agreements (SLAs) with both customers and other
carriers. The system is currently in beta trials with
several customers, including Frontier Corp., Rocky Mountain
Internet, Finland's Telia and Sonera (formerly Telecom Finland)
and is expected to begin shipping for revenue in early Q3:99.
We project volume shipments will commence during H1:00.
Competitors that have announced similar product offerings
include CoSine Communications, Redback Networks, Torrent
Networking Technologies, and TransMedia Communications. To
date, Nortel has been an OEM customer of Redback's Subscriber
Management System (SMS).
Our checks indicate the Shasta platform is technically strong
and we believe the company's management and engineering teams
are first rate. Shasta Networks was founded by three former
executives of Cisco Systems, Anthony Alles, Tom Daly, and Dr.
Arthur Lin. Tom Daly, the company's Chief Technical Officer
was previously VP of Engineering at Cisco, while Dr. Arthur
Lin was the company's ATM switch architect. Prior to joining
Shasta, Wu Fu Chen, the company's chairman and CEO, founded
six communications equipment companies, including Cascade
Communications (acquired by Ascend in 1997), Ardent
Communications (bought by Cisco in 1997) and Arris Networks (
purchased by Cascade in 1996).
We view the Shasta system as complementary to Nortel's
current WAN packet networking initiatives, including the CVX
1800 remote access switch, Versalar 15000 IP edge router,
Magellan Passport family of multi-service switches and the
recently-announced Succession portfolio of carrier-grade IP
telephony solutions. We believe the acquisition is
consistent with Nortel's systems approach and demonstrates
management's desire to aggressively assemble a compelling next
-generation product portfolio. Reiterate BUY. |
