The acquisition is another move by Lucent to try to firmly position itself to take advantage of the rapidly growing opportunities in data networking.
Since September, Lucent also has acquired Livingston Enterprises, of Pleasanton, California, a provider of remote access networking solutions for the Internet; Prominet, a Marlborough, Massachusetts-based developer of Gigabit Ethernet local area network switching and routing products; and Yurie Systems of Landover, Maryland, a leading wide area network access equipment supplier.
"This acquisition helps fill an important space in our growing data networking portfolio," said Bill O'Shea, president of Lucent's data networking systems group. "The intelligent LAN switch opportunity is growing at better than 20 percent a year, and this move will help us offer a comprehensive Lucent LAN switching solution from the desktop to the edge of the wide area network."
O'Shea added that Tel Aviv, Israel-based LanNet, a subsidiary of Madge Networks, has a strong global customer base and well-developed sales channels, particularly in Europe, which Lucent considers a critical growth area.
However, Peter Andrew, an analyst with investment banking firm A.G. Edwards, questioned Lucent's strategy of acquiring many small companies. "It's going to be tough to bring all the little pieces they've bought and put it all together into one company," he said.
Andrew added that he thinks Lucent spent too much to acquire only a small share of the layer II switching martket. Madge Networks controls about 1.3 percent of that market.
A source close to the industry said that Lucent tried acquiring LanNet a few months earlier, but that Madge Networks had found the price too low.
"I'm not surprised Madge wanted to get rid of [LanNet]," Andrew said. "They never could get products out on time, and they're always over-budget."
The purchase is expected to result in a one-time, noncash charge against earnings. Excluding the charge, the impact of the purchase to earnings in fiscal 1998 is expected to be immaterial, according to Lucent.
Lucent expects the acquisition to be completed sometime in the fall, at which point LanNet will become part of its Enterprise Infrastructure Products Group (EIPG) within Data Networking Systems.
Shmuel Levy, chief executive of LanNet, will join Lucent as president of EIPG Israel Technology Center.
"LanNet customers should be delighted with this purchase because Lucent is an emerging global leader in data networking," Levy said in a statement announcing the acquisition. "We look forward to leveraging Lucent's world-renowned Bell Labs, its NetCare professional services and support capabilities, and its unsurpassed relationships with leading enterprises around the globe."
Lucent shares rose more than 2 percent at the market's open, trading at $87.19. The stock has traded as high as $87.63 and as low as $36.19 during the past 52 weeks.