Extreme plans to exchange about 2 million of its shares for all the outstanding shares of privately held Optranet, based in Pleasanton, Calif. Shares of Extreme closed at $39.13 Friday, making the deal worth about $78 million.
The network equipment maker's stock fell $11.50 Tuesday, down 29 percent to $27.63 by market close.
The transaction is scheduled to be completed Jan. 31. Extreme expects to record a one-time charge once the deal closes.
Extreme Networks sells high-speed networking devices to businesses and ISPs so they can manage Net traffic over their networks. The company competes with Cisco Systems, Nortel Networks, Lucent Technologies and other emerging players, such as Foundry Networks.
The purchase helps expand Extreme Networks' product family for metropolitan areas. The company sells equipment that uses the Ethernet protocol at gigabits-per-second speeds, allowing ISPs to offer high-speed Net access at cheaper rates.
Optranet builds Ethernet-based equipment that allows service providers to add new high-speed Net services. According to the company's Web site, Optranet has yet to publicly announce any products.
Extreme Network executives could not be reached for comment.
News.com's Wylie Wong contributed to this report.