Nortel buys Bay Networks for $US9.1 billion

Northern Telecom (Nortel) ended weeks of speculation last month by announcing that it is buying Bay Networks for $US9.1 billion.

If the deal gains approval from Bay shareholders and regulators, it will be the largest transaction to date in telecommunications and data network systems, Nortel said in a statement. The merged company will be the first to supply worldwide IP (Internet Protocol) integrated networks offering voice and data, Nortel said.

Bay will operate as a wholly owned subsidiary after the merger. Bay shareholders will own about 21 per cent of Nortel under the deal. The deal is expected to be complete in the third quarter of this year.

Nortel will integrate its Enterprise Data Networks business into Bay's operations. John Roth, Nortel president and chief executive officer, will be CEO and a director of the merged corporation. Dave House, Bay chairman, CEO and president, will be president of Nortel and serve on the board of directors.

The merger is expected to intensify competition for Cisco Systems, the networking giant and major provider of IP routers and equipment in the enterprise and service provider segments. On its own, Bay has not been a potent force against Cisco in those markets.

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