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Nortel to Acquire Bay Networks

In a deal valued at $9.1 billion, Canadian telco Nortel (Northern Telecom) announced today it will acquire networking market leader Bay Networks, a merger that's being billed as the largest of its kind between a telecommunications company and a data network systems provider.

The transaction creates a $17.7 billion worldwide entity (based on 1997 calendar sales) with over 80,000 employees. Nortel said the two companies combined will deliver a new breed of integrated Internet Protocol (IP) networks that will transmit voice, data and video from one desktop to another via LAN (Local Area Network), WAN (Wide Area Network) and carrier backbones.

Under the terms of the agreement, Bay Networks will function as a wholly-owned subsidiary of Nortel. Shareholders of Bay Networks will get a fixed exchange ratio of .60 of a Nortel common share for each share of Bay Networks common stock. Due to the merger, Nortel plans to issue about 134 million common shares in the aggregate with respect to Bay Networks' outstanding shares.

Based on the closing price of $63.69 per share of Nortel (as of June 12, 1998), this represents a price of $38.21 per share of Bay Networks and $9.1 billion for the entire transaction, on a fully diluted basis. Upon the transaction's closing, Bay Networks shareholders will own roughly 21% of Nortel.

Both companies' boards have reportedly approved the merger, which is expected to close late third quarter of 1998 and will need to pass anti-trust regulation approval.

When finalized, the merger calls for Nortel's Enterprise Data Networks unit to be folded into Bay Networks' business. Nortel president and CEO John Roth will retain his title as chief executive officer and director of the corporation. Bay Networks chairman and president Dave House was named president of Nortel and will be appointed to the Nortel Board of Directors.

"This transaction creates a new category of company suited to this era--an era of end-to-end, mission-critical IP networks. Our combined business will be ideally constructed to meet this need, in terms of complementary expertise, products, and distribution," said Roth in a statement.

"Because of the lack of overlap, we can focus strictly on meeting the needs of our customers, not on rationalizing the combined business. With this transaction, Nortel and Bay Networks will effectively break out and redefine the center of the information industry--the unoccupied space where data and voice networks, driven by the Internet, are expected to converge."