Tellabs

(TLAB)

Thursday said it will acquire

Advanced Fibre Communications

(AFCI)

in a $1.9 billion cash and stock deal in the telecommunications equipment sector.

Under terms of the agreement, stockholders of AFC will receive 1.55 shares of Tellabs common stock and $7 in cash for each of their shares. That values the offer at $21.24 a share, based on yesterday's closing price of Naperville, Ill.-based Tellabs.

Tellabs will control 75% of the new company. The deal is expected to close in the second half of this year and be accretive to 2005 earnings. The combined company will employ about 4,100 people.

Shares in the Petaluma, Calif.-based AFC rose $2.62, or 15.6%, to $19.45 in premarket trading. Tellabs shares dropped 72 cents, or 7.8%, to $8.47.

"Together, Tellabs and AFC create a strategic global telecom equipment supplier that will lead the industry's shift to broadband data with end-to-end access and transport solutions," Tellabs said in a statement. "Marrying the leader in access with the leader in transport positions us to grow with our customers in the industry's sweet spot of broadband services. This will enable us to help customers simplify networks, offer easier service provisioning and sharpen their competitive edge."

As of Wednesday's close, Tellabs had a market capitalization of about $3.83 billion, compared with AFC's $1.48 billion.