Nortel Pulls Power Move on Rivals

Nortel Networks Friday countered strikes
by networking rivals Cisco Systems Inc.
and Lucent Technologies Inc. by grabbing
content switch giant Alteon WebSystems
for $7.8 billion in stock.

Alteon’s shareholders will receive a fixed exchange ratio of 1.8 Nortel
common shares for each share of Alteon’s common stock. Based on Thursday’s closing
price of $78.63 per common share of Nortel Networks, the deal values Alteon at $144 a share.

The deal is expected to close in the fourth quarter.

Nortel, widely acknowledged as the No. 2 network supplier to
Cisco, had sat quietly this week as Lucent Tuesday bought network switching supplier Spring Tide Networks for $1.3
billion in stock and Cisco countered with the purchase of data storage
network NuSpeed Internet Systems for
$450 million in stock.

Alteon’s Public Relations Manager Pat Cooper told Friday the deal came up quickly; he also confirmed that a few networks had been looking to buy Alteon for a while.

Lucent was one of them, he said, but Cisco did not pursue Alteon because it had already acquired a leader in the switching space — ArrowPoint Communications Inc..

In buying Alteon, the Canada-based Nortel dealt its
competitors a sharp blow; the firm claims it has become the new leader in
Net data centers.

The acquisition will enable Nortel Networks to build the next generation
Internet data center — capable of delivering content at unprecedented
levels of speed, efficiency and reliability.

Nortel Networks will be able to offer a complete Internet data center
solution by integrating Alteon’s content aware switching products with
Nortel’s service offerings in storage, gigabit switches, professional
services, hosted application management and caching.

The deal makes sense for Nortel as Alteon is regarded as the top content
switch provider — bigger in scale than Lucent’s newly-acquired Spring Tide
Networks and Cisco’s ArrowPoint
Communications, which it bought in May for about $5.7 billion in stock.

“In the new economy, the value and richness of content across the Internet
is increasing on a massive scale,” said Clarence Chandran, chief operating
officer, Nortel. “Our acquisition of Alteon WebSystems will accelerate the
delivery of an Internet data center capable of moving content seamlessly and
rapidly across high-performance optical Internet and 3G wireless networks.”

Analysts say content switching is set to explode. International Data Corp.
expects the sector to grow to more than $4 billion by 2004 from $203 million
in 1999.

Alteon’s success at selling its Layer 4-7 Web switching capability points to
this; the firm posted revenue of $51.5 million for the
quarter ending last June — an increase of 82 percent from the previous
quarter. Based on worldwide revenue, Dell’Oro Group estimates that Alteon
WebSystems holds 50 percent of the global content aware switching market in
Layer 4-7 switching.

Alteon’s customer base includes service provider such as Yahoo! Inc.,
[email protected] Inc.
and Inc..

Alteon President and Chief Executive Officer Dominic Orr will become the
president of Nortel Networks’ Content Distribution Networks business unit.

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