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Avaya to buy VPNet for $120 million

The Lucent Technologies spinoff agrees to pay $120 million to buy VPNet, a company that makes equipment for virtual private networks.

Lucent Technologies spinoff Avaya has agreed to pay $120 million to buy VPNet, a company that makes equipment for virtual private networks.

Avaya's first purchase since it declared independence from Lucent three months ago is expected to reduce fiscal 2001 earnings by three cents a share.

With the acquisition, Avaya, which offers communications equipment for big-business customers, is hoping to capitalize on a market for VPNs that several analysts expect to grow to $4.3 billion by 2003. VPNs allow a company to securely use a public network, including the Internet, to link branch offices and remote workers.

Ariane Mahler, an analyst with Dresdner Keinwort Wasserstein, an investment bank, said the relatively small price Avaya paid for VPNet is a positive, allowing Avaya to avert heavy spending to develop the VPN technology internally.

"It's not a whole lot of money; that's a good thing in this environment," she said. "It's a very smart way not to spend billions in research and development."

Avaya already offers its customers Lucent-developed VPN gear. The VPNet products are "complementary" and there are no plans to scale back the Lucent offerings, an Avaya representative said.

"We believe our customers want a choice as to how they manage their communications," said an Avaya representative. "Some will purchase an entire network, others will look to service providers, which fits in well with Lucent product."

Avaya, a $7.4 billion company, formerly known as the Enterprise Networks Group at Lucent, was spun out of Lucent so that the massive telecommunications gear maker could focus on more-lucrative markets, such as high-end networking and wireless products for communications carriers and Internet service providers. VPNet is a privately held company based in Milpitas, Calif.