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Newbridge offers cash to save Stanford deal

The struggling networking firm renegotiates a deal to buy Stanford Telecommunications, after the equipment provider threatens to call off the merger.

Struggling networking firm Newbridge Networks today renegotiated its agreement to purchase Stanford Telecommunications, after the equipment provider threatened to call off the deal.

The original agreement, struck in June, called for a stock swap worth $490 million, giving shareholders 1.4 shares of Newbridge stock for each share of Stanford they owned.

But after Newbridge's stock fell sharply--today trading at nearly half its June levels--Stanford wanted to renegotiate. The firm asked for either an all-cash deal, or more Newbridge stock to ensure Stanford would still net $490 million from the purchase.

Newbridge today decided to revise the deal to an all-cash transaction. "If Newbridge was not willing to negotiate, then Stanford Telecom would have walked away from the deal," said Stanford spokesman Gary Wolf. "But both parties wanted to see the deal done."

A Newbridge spokesman, however, said the firm would never have allowed the acquisition to fall through. "Both sides were highly motivated to have the deal proceed," spokesman Christopher Fox said. "We've both invested a great deal of time in the actual acquisition and the technology itself."

Newbridge, the subject of acquisition rumors itself, is counting on Stanford's broadband wireless access technology to help the company build networking products for the emerging market.

Newbridge specializes in network switches that help send voice and data signals over telecommunications lines. But it's counting on broadband wireless technology as well as upgrades for its Internet routers and switches, to help turn the company around.

The firm last week announced it expects a second-quarter profit of 8 to 10 cents per share, far below the 20 cents per share originally expected by Wall Street analysts.

Newbridge's president Alan Lutz resigned after the earnings warning and was replaced by executive vice president Pearse Flynn.

A Newbridge spokesman said the company has agreed to sell three parts of Stanford's technology it doesn't want. ITT Industries will buy Stanford's defense communications business, DII Group will purchase Stanford's manufacturing and quality assurance division, while Intel will buy Stanford's telecommunications component products. Because these deals total $250 million, Newbridge will only spend $240 million to purchase the rest of Stanford, the spokesman said.

Stanford Telecom's board of directors will meet in mid-December to vote on the revised purchase agreement with Newbridge.