Nortel to Buy Alteon in $7.8 Billion Stock Deal

Updated from 12:26 p.m. EDT

Nortel Networks(NT Quote) said Friday that it had agreed to acquire Alteon WebSystems(ATON Quote) for stock it valued at $7.8 billion.

The deal, set to close in the fourth quarter of 2000, is only the latest in a series of acquisitions that have helped Nortel become the world's second-largest telecommunications equipment provider.

Nortel's deal comes a day after Corning said it had broken off talks to acquire Nortel's fiber optics unit in a deal potentially valued at $100 billion.

Shares of both companies slid on the news, with Alteon dropping 16 3/8, or 11.5%, to 126 5/8 and Nortel shares fell 6, or 8%, at 72 1/2 late on Friday morning.

In a mid-morning conference call, executives at the companies contended that Friday morning's selloff was not related to the deal, pointing instead to overall "market volatility" and adding that other technology stocks were down as well.

Under the agreement, Nortel will offer Alteon shareholders 1.83148 Nortel shares for each Alteon share. The estimated $7.8 billion purchase price is based on Thursday's closing price of $144 a share for Alteon, and $78.625 for Nortel shares so represents no premium.

Nortel, based in Brampton, Ontario, said the purchase of Alteon, a leading provider of products that speed up network data transmission, would help it develop a cutting-edge Internet data center capable of delivering content efficiently and reliably at unprecedented speeds.

Internet data centers are powerful combinations of servers, routers and other communications equipment used to run Internet Web sites and facilitate e-commerce transactions. Nortel said it hopes to incorporate San Jose, Calif.-based Alteon's switching products into its technology, allowing it to integrate Internet data centers with its high-speed optical and three-giga-hertz wireless Internet technologies.

Dominic Orr, president and chief executive of Alteon, said the two companies "share a common vision of high performance content delivery services that exploit the high-performance Internet and create new profit opportunities for service providers."

He added that the merger would greatly expand both companies' reach and give them a leading edge in capturing market share in switching technology.

The proposed acquisition of Alteon is only the latest in a string of recent purchases by Nortel. The Canadian company already acquired Architel, a provider of telecommunications systems software architecture, this year.

Nortel is also the parent company of Clarify, which makes software that automates front-office customer service, desk support and other front-office functions. Nortel owns two-thirds of Elastic Networks, which makes equipment used to deliver high-speed Internet access over phone lines. The Canadian company also owns 32% of Entrust Technologies, which makes security software.

Alteon shares have shed $34 per share this week, after hitting a 52-week high of 160.56 on Monday. The current price is still significantly higher than Alteon's 52-week low of $41 per share set on April 4.