UPDATE - Nortel to Acquire CoreTek for US$1.43 Billion

Nortel Networks is acquiring CoreTek, a privately held maker of optical components, for up to US$1.43 billion in Nortel common stock, officials from both companies announced yesterday.

CoreTek makes tunable lasers and other components that will help Nortel in its push to build an all-optical Internet, and which complement other technologies and companies Nortel either has acquired or has in the works, said Greg Mumford, president of Nortel's optical networks.

CoreTek uses VCSEL (vertical cavity surface-emitting laser) and MEMs (micro-electromechanical systems) technology in its products. The technology uses tiny mirrors that are movable to change the wavelength of light from semiconductor lasers and other optical components.

Its next generation devices will let networks change light wavelengths in real time as they travel through the network so that traffic can be monitored and re-routed, according to the companies. The result is improved speed and performance as well as lower costs for network vendors, they said.

Nortel was attracted to CoreTek because its products offer a range of advantages, including shorter switching times, and because Nortel officials have deemed CoreTek's line "the absolute best of breed of second-generation tunable laser."

CoreTek plans to ship its next generation of components in the fourth quarter of this year. Its components currently operate in 10G-bits per second (bps) systems, but it plans to develop components that operate in 40G-bps and 80G-bps systems, said Parviz Tayebati, CoreTek's chief executive officer, who will stay with the company after the merger and oversee the use of CoreTek's technology.

CoreTek has 120 employees and is Massachusetts. Its integration into Nortel is expected to be finished in the second quarter of this year. Using a Nortel share price of $119.75, the deal is expected to mean Nortel will issue about 8.9 million of its common shares on a diluted basis. The remaining $361 million worth of common stock in the deal will be issued after CoreTek reaches specific milestones, according to Nortel.

When asked at a teleconference today with financial analysts whether he contemplated selling to any other companies, Tayebati declined to comment. He did say that "this was actually a very easy decision for us to make" because merging with Nortel means that CoreTek will be able to get its products into the market much more quickly.

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