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Alcatel To Buy Internet Firm Xylan

March 2, 1999

LOS ANGELES (AP) _ Alcatel SA is paying $2 billion for network equipment maker Xylan Corp. in a move designed to help the French telecommunications company catch up to competitors in Internet and data transmission markets.

The deal will also substantially boost Alcatel’s presence in the United States. Xylan is based in the Los Angeles suburb of Calabasas and counts several leading U.S. companies among its customers.

Alcatel is a leader in providing traditional voice telephone systems, but is behind companies such as Lucent Technologies Inc. and Cisco Systems that provide systems that also include data transmission and Internet connections.

``The world of communications and networking is undergoing fundamental changes,″ said Olivier Houssin, executive vice president of Alcatel Telecom. ``Voice and data are converging. The new world will not contain voice companies and data companies. It will only contain information companies.″

Xylan’s expertise is in making switches and routing gear needed for high-speed data networks. Alcatel bought 6.5 percent of Xylan in 1995 and for several years has sold Xylan products to complement its own systems.

Alcatel agreed to pay $37 per share for Xylan, which was founded in 1993 and has grown at rates of more than 60 percent during the past two years. Xylan’s shares soared on news of the deal, rising $8.91 1/4 or 33 percent to $35.75 on the Nasdaq Stock Market.

The deal is part of a campaign to broaden Alcatel’s services and products. During a news conference in Paris to announce the Xylan acquisition, Alcatel chairman Serge Tchuruk said Alcatel would buy another company by the end of the week.

Tchuruk declined to identify the company, but said it would fill another product gap: the ability to link mobile computers to local area networks.

``They’re adding all the pieces they need to add to go forward as, A: a company that can move forward on an international basis and, B: a better rounded company,″ said Jeffrey L. Pittsburg of Goldis-Pittsburg Investment Services.

Xylan’s U.S. clients include IBM, 3M Co., Texas A&M University and the Getty Center museum in Los Angeles. Alcatel has operations in 130 countries, but is eager to deepen its penetration of the U.S. market.

``The world is about to move to a structure that completely integrates voice and data we believe the U.S. will be the leader in this and we are determined to play a part,″ Houssin said in a teleconference with reporters.

The boards of both companies have approved the deal, which is subject to clearance by antitrust regulators. Alcatel hopes to complete the purchase by April.

Steve Kim, Xylan’s president and chief executive, said in a telephone interview today that the deal will allow Xylan to compete more effectively against larger competitors such as Cisco, Lucent and Nortel Networks.

``Today’s investors are favoring the large companies,″ he said. ``They see us as still small.″

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