Actual Release from GEC website
analysis.esi.co.uk
RNS No 2391k
GENERAL ELECTRIC COMPANY PLC26 April 1999
For Distribution in the UK and the US
GEC agrees to acquire FORE Systems, Inc.
for $35 per share
in Cash Transaction valued in excess of $4 billion
LONDON, ENGLAND AND PITTSBURGH, PENNSYLVANIA, US - 26 APRIL 1999 - The
General Electric Company, p.l.c. ("GEC") and FORE Systems, Inc. ("FORE
Systems") (Nasdaq: FORE) today announced that they have entered into an
agreement for the acquisition of FORE Systems for total consideration of
$4.5 billion (#2.8 billion) ($4.2 billion, net of cash) at an agreed
price of $35 per share in cash. This represents a premium of 43% to the
FORE Systems closing price on Friday 23 April 1999. The definitive
merger agreement provides for an affiliate of GEC to commence a cash
tender offer for all of FORE Systems' shares at $35 per share on or
before 30 April 1999. Upon completion of the Offer, GEC will effect a
merger between this affiliate and FORE Systems, following which
FORE Systems will become a wholly owned subsidiary of GEC.
FORE Systems, with revenues of $632 million in the year ended 31 March
1999, is a leading global supplier of high performance, Internet
switching equipment based on a "best in class" portfolio of products
featuring Asynchronous Transfer Mode ("ATM"), Internet Protocol ("IP"),
Gigabit Ethernet, and Firewall switching technologies. These systems
are used in the backbone of some of the largest enterprise and Internet
service provider networks in the world. FORE Systems' award-winning
solutions are recognised in the industry for their ability to handle the
stringent and dramatic capacity, scaling, and resiliency requirements of
today's rapidly growing Internet. This is why a major portion of the
global Internet traffic is switched by FORE Systems equipment. In
addition, FORE Systems' products support the advanced Quality Of Service
(QoS) and traffic management necessary to deliver a scalable
multiservice switching solution for the emerging New Public Network.
The combination of ATM and IP switching from FORE Systems and GEC's
MARCONI Communications' call control (SS7) and Intelligent Networking
provides the "best in class" switching foundation for the New Public
Network. Along with MARCONI Communications' leading optical networking
solutions and next generation access products (recently acquired with
Reltec), GEC is positioned at the forefront of the rapidly growing
global communications infrastructure market. This acquisition
strengthens the GEC Group's presence in the United States, which is the
world's largest market for telecommunications equipment. In addition,
this transaction provides GEC with access to the high growth enterprise
networking market, which is becoming increasingly integrated with the
carrier market. The combined company will be able to bring a broader
range of products and technology with greater strength and scale to
address enterprise businesses world-wide. As a result, FORE Systems will
enhance its ability to experience significant growth rates that outpace
the overall industry average.George Simpson, Chief Executive of GEC, said:
"This acquisition reinforces our position as a leading supplier of voice
and data networking technology. The purchase of FORE Systems provides
us with access to new markets and new customers and extends our product
portfolio into the increasingly important ATM and IP switching sector.
This is also a big boost to MARCONI Communications' already considerable
technology base. We will now be in a position to capture the full
benefits of the impact of the explosive growth of Internet and other
data traffic on the demand for communications equipment and systems."
Thomas J. Gill, President and Chief Executive Officer of FORE Systems,said:
"The combination of FORE Systems, Reltec, and MARCONI Communications
will create one of the world's foremost global telecommunications and
networking equipment companies. Together we can provide our customers
with a comprehensive range of integrated solutions to accommodate the
rapid growth of high-speed data, voice and video services on a global
basis. Joining forces with GEC will provide further new and exciting
opportunities for FORE Systems employees throughout the world, and allow
us to accelerate the growth of our business. We are committed to
driving FORE Systems to achieve its full potential within the GECGroup."
FORE Systems - A leader in ATM and IP switching
FORE Systems, based in Pittsburgh, Pennsylvania is a leading designer
and producer of high performance networking products based on ATM and IP
technologies. FORE Systems has approximately 2,000 employees, of whom
approximately 1,450 are based in the United States.
FORE Systems' range of products includes ATM and Ethernet switches,
adapter cards, multiplexing products, internetworking software, network
management software and video products.
FORE Systems is a leader in the enterprise and private networks market,
where its key customers and partners include numerous departments of the
US Government, several universities, and commercial enterprises such as
Delta Airlines, Donaldson Lufkin & Jenrette, Disney Animation, Chrysler,
Intel, Lloyds TSB, Microsoft, Prudential Insurance, Shell Oil and
Unisys. FORE Systems also has a strong and rapidly growing presence in
the carrier market, where its key customers include Cable & Wireless
USA, GTE, Level 3, MCI WorldCom and UUNet.
FORE Systems reported sales of $632 million for the year to 31 March
1999 (an increase of 35 per cent. over $467 million for 1998).
Operating income before interest, taxes and non-recurring items was
$55.4 million in 1999 (up 48 per cent. from $37.5 million in 1998).
As of 31 March 1999, FORE Systems had net assets of $680 million
including cash and short term investments of $361 million.
Mr Tom Gill will continue as FORE Systems' CEO and President, and will
report directly to George Simpson, Chief Executive of GEC. FORE Systems
will operate as a wholly owned subsidiary of GEC and will continue to
run its business accordingly, while continuing to use the name of FORE
Systems. In addition, FORE Systems will work aggressively with MARCONI
Communications to exploit the natural synergies between both units to
take a leadership position in delivering a new generation of public
network solutions.Strategic rationale for the acquisition
The dramatic growth of the Internet has resulted in data traffic
becoming a rapidly growing percentage of total network traffic, with
Internet data traffic expected to exceed voice traffic in total volume
this year. In addition, the telecom service industry is becoming
increasingly competitive due to deregulation and the emergence of new
telecom service providers. The pressure on carriers to reduce costs and
increase the flexibility of their networks has become intense. The
combination of these factors has meant that telecom service providers
have increasingly focused on new data networking technologies, which are
efficient at handling large volumes of data. This is referred to in the
industry as "The New Public Network". This is driving the rapid growth
in demand for ATM and IP switching systems and optical transmission
networks equipment, software and systems. FORE Systems is a leading
supplier of ATM and IP solutions, and MARCONI Communications is a
leading supplier of optical networking solutions.
FORE Systems represents an attractive acquisition for the followingreasons:
- Strong technology: The acquisition will provide MARCONI
Communications with industry leading technology in ATM and IP
switching, the technology that is critical for building next
generation telecommunications networks. Combining this with MARCONI
Communications' broad portfolio of telecommunications products will
enable MARCONI Communications to establish a leadership position in
defining and building out New Public Network infrastructures and
solutions and to service more effectively its existing customers.
- Enhanced penetration of the carrier market: The acquisition will
substantially expand MARCONI Communications' customer presence in the
United States. In particular, the acquisition will provide access to
the fastest growing telecom carriers in the U.S. including Internet
Service Providers and new Competitive Local Exchange Carriers, which
will provide significant opportunities for cross selling.
- Entry into the enterprise market: The acquisition provides GEC with a
significant presence in the enterprise data networking market,
opening additional channels for sales for other products to
corporations and access to new technologies.
- Enhanced development capabilities: The acquisition brings to MARCONI
Communications "state of the art" development capability in rapidly
evolving technological fields, for example ASIC based IP packet
processing and switch fabric design. These development resources will
enable MARCONI Communications to respond quickly to new market
opportunities and service customers' future needs more effectively.
In summary, the FORE Systems acquisition provides GEC with technology
and market positions in a key and very rapidly growing area of the
telecoms equipment and systems market and provides a complementary
product range, which will provide substantial opportunities forincreased sales.
Financial impact on GEC
It is expected that the acquisition will be broadly neutral to proforma
new GEC earnings per share before goodwill (assuming that the demerger
of MARCONI Electronic Systems and associated transactions are completed)
in the year to 31 March 2000 and thereafter it is expected to be
earnings enhancing. GEC will finance the acquisition from cash
resources and from drawings under its Euro 6 billion group bankfacilities.
Further details of the transaction structure
GEC Incorporated and FORE Systems have entered into a definitive merger
agreement (the "Merger Agreement") under which a US subsidiary of GEC
("Acquisition Corp.") will commence a cash tender offer (the "Offer") on
or before 30 April 1999 for all of FORE Systems' shares at $35 per
share. Following the completion of the Offer, GEC and FORE Systems
have agreed to effect a merger between Acquisition Corp. and FORE
Systems (the "Merger"), in which the remaining shareholders of FORE
Systems will receive the same price per share paid in the Offer. Upon
completion of this Merger, FORE Systems will be a wholly ownedsubsidiary of GEC.
The Merger Agreement provides that FORE Systems will pay a termination
fee to GEC in the event that the Merger Agreement is terminated under
certain circumstances.
In addition, GEC and FORE Systems have entered into a Stock Option
Agreement (the "Stock Option Agreement") whereby FORE Systems has
granted an option to GEC Acquisition Corp. to purchase up to 19.9% of the
shares of FORE Systems at the offer price, which shall be exercisable in
most cases when the termination fee is payable and in certain other
limited circumstances.
Simultaneously, on entering into the Merger Agreement, certain members
of the management and board of FORE Systems have entered into a
stockholder agreement (the "Stockholders Agreement") whereby they have
agreed to sell their shares in FORE Systems to Acquisition Corp. and to
vote in favour of the merger. The senior management group has also
entered into new employment agreements.
The Merger Agreement and the Stock Option Agreement have been approved
by the Boards of Directors of GEC and FORE Systems and the Stockholders
Agreement has been approved by the Board of Directors of GEC. The Offer
and the Merger are conditional upon, inter alia, receipt of the required
regulatory approvals and clearances. Assuming regulatory approvals and
clearances are received, it is anticipated that the acquisition of FORE
Systems will be completed in June 1999. |
