More: Lucent acquires Prominet in $200m stock deal
Marlborough switch maker started just 20 month ago
By Ronald Rosenberg, Globe Staff, 12/11/97
Twenty months ago, Prominet Corp. was born, and less than seven
weeks ago the high-tech upstart shipped its first product. Yesterday it
sold itself for nearly $200 million.
''We held a company meeting this morning and there were a lot of smiles, and
we had some bagels,'' said Menachem Abraham, Prominet founder and chief
executive.
Yesterday, Marlborough-based Prominet agreed to be acquired by giant
Lucent Technologies Inc. - a feat accomplished in amazingly swift time for a
New England-based hardware manufacturing start-up.
Under the agreement, Lucent will exchange 2.5 million shares for all of the
stock in privately held Prominet, said Abraham.
Lucent closed at 783/16, down 1 15/16, which gives the deal a value of $195
million. Lucent, which makes communications equipment, was spun off by
AT&T Corp. in April 1996.
The agreement is the jackpot for nearly everyone involved in the 80-employee
company, which shipped its first switches used to transmit computer data at
high speeds in mid-October.
The biggest gainers are a trio of venture capital companies, Matrix Partners
and Charles River Ventures, both of Waltham, and Menlo Ventures of Menlo
Park, Calif. Their combined $13.5 million investment is now worth nearly $130
million in Lucent stock, according to Abraham.
And while Prominet's top management all became millionaires on paper, the
team of young engineers who left jobs at big companies to gamble with their
careers on a start-up also prospered.
Abraham estimates many who have been with the company at least a year
will each have Lucent shares worth about $500,000.
''This deal was good for everyone,'' chuckled Abraham, who became a
millionaire in 1995 when 3Com Corp., a Silicon Valley networking giant,
acquired Chipcom Corp. of Southborough for nearly $900 million. At the time,
Abraham was vice president of engineering for Chipcom.
Lucent first suggested acquiring Prominet in September, more than a month
before Prominet shipped its first product. Discussions escalated last month.
''With a fast-moving technology, we were at a point where we knew we
needed a lot of muscle in sales and marketing to sell our switch, and that
would take a lot of time and money to develop, and Lucent understood our
concerns,'' said Abraham.
That switch, known as gigabit ethernet, represents the latest in high-speed
local-area networking.
It is based on the long-standing Ethernet networking architecture, moving huge
packets of data at high speeds - up to 1 billion bits, or one gigabit per second.
This enables computer users working on the Internet and within corporate
intranets to send and receive huge amounts of text, graphics, and video
images.
And Lucent Technologies wants to get in on the ground floor of gigabit
ethernet communications quickly. It also knew Prominet would command a
high price, as other fledgling gigabit ethernet companies were being scooped
up.
Nearly 15 months ago, Cisco Systems Inc. of San Jose, Calif., the largest
maker of computer networking equipment, surprised Wall Street when it
acquired Palo Alto, Calif.-based Granite Systems Inc., a 50-employee firm
with no products, for $220 million. And this past summer, Bay Networks Inc.
of Santa Clara, Calif., paid $165 million to acquire Rapid City Communications
Inc., a 35-employee firm in Mountain View, Calif.
And 3Com Corp., also based in Santa Clara, is developing similar gigabit
ethernet switching products in its Massachusetts research and development
facility.
''With Prominet, Lucent is trying to get more into the corporate data
networking to supplement its products and revenue from the [telephone]
carrier space,'' said Martin Pyykkonen, principal at Furman Selz LLC in San
Francisco. ''But Lucent is also smart enough not to go head-to-head with
3Com, Cisco and Bay Networks, and is maneuvering around them.''
This story ran on page A A37 37 of the Boston Globe on 12/11/97.
c Copyright 1997 Globe Newspaper Company.
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