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Nortel Continues DSL Buying Spree With $778 Million Promatory Deal

The transaction is expected to be slightly accretive to Nortel's EPS in calendar year 2000.

Nortel Networks


Thursday reached a definitive agreement to buy

Promatory Communications

, a developer of digital subscriber line technologies for high-speed Internet access, in a stock deal valued at up to $778 million.

Nortel's stock was off 4 1/8, or 5%, at 85 3/4, in a down market for tech stocks Thursday morning. (Nortel was trading down 5 7/8, or 7%, to 84 late Thursday.)

The deal caps a string of recent acquisitions reported by Nortel, the No. 2 manufacturer of telecommunications products in North America. In December, Nortel said it would buy


for up to $3.25 billion in stock.

Nortel (NT)

Based in Fremont, Calif., privately held Promatory, which has 100 employees, posted about $1 million in revenue in 1999.

Under the terms of the deal, Nortel will pay an estimated $705 million in common shares at closing. Up to an additional $73 million in common shares will be payable "subject to certain business performance objectives in 2000," Nortel said in a statement.

The number of shares to be issued to Promatory will be based on the average price of Nortel Networks common shares during a specified period prior to closing. It will not be greater than 9.4 million shares or less than 6.3 million, Nortel said. Nortel has 1.36 billion shares outstanding.

The transaction, expected to close in first quarter 2000, is expected to be slightly accretive to Nortel Networks' earnings per share in calendar year 2000.

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Promatory, which develops a technology that enables copper telephone wires to carry Internet traffic at up to eight megabits per second, is considered to be among the top in its sector.

"Eight megabits per second is quite significant in terms of delivery capacity," said Michael Davies, telecommunications analyst at


. Davies doesn't rate Nortel and Gruntal hasn't done any underwriting for the company.

Davies said Promatory's technology would help Nortel to boost revenue and cut costs by allowing the company to deliver voice and data services over a single conduit.

Clarence Chandran, executive vice president and president of Nortel's Service Provider and Carrier Group said the acquisition would ultimately benefit both the user and the Internet service provider.

"The industry has been waiting for a true broadband Internet access solution over copper, one that delivers high-speed service for the user and a profitable business model for the service provider," Chandran said.

Nortel and its main competitors,


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, have all embarked on acquisition campaigns as the telecommunications market moves toward a massive wave of consolidation.

"This is a harbinger of things to come," Davies said.