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Networking giants buy to up tech lineups

Cabletron and Bay Networks swallow up start-ups to increase their technology offerings.

Two networking giants added to their technology lineups today, plucking start-ups out of obscurity.

Cabletron Systems (CS) announced the acquisition of gigabit-speed equipment start-up Yago Systems in a deal that could be worth as much as $213 million. Bay Networks (BAY) nabbed Acton, Massachusetts-based New Oak Communications for $156 million in cash and stock.

The long-expected acquisition by Cabletron, reported by CNET's NEWS.COM in December, will give the struggling networking player an entry into the emerging market for high-performance switches that also offer routing functions. Bay essentially bought its way into the market for software that ties internal networks to external customers securely.

Based on the current stock price, the Cabletron deal is worth $165 million. But the terms are more complicated than that. Cabletron and Yago executives negotiated a purchase price of $213 million.

Given the woeful state of Cabletron's stock, the two companies agreed to stagger a second installment of 5.5 million shares 18 months out in case the stock price has not rebounded to a level of $35 per share. The initial installment calls for Cabletron to offer 6.1 million shares.

Cabletron already holds a 25 percent stake in Yago.

Under the terms of the Bay deal, the networking giant will exchange $133 million worth of its own stock and $23 million in cash for all outstanding shares of New Oak. The acquisition will result in a one-time charge for in-process technology during the current quarter, which ends March 28, 1998.

New Oak makes hardware that combines traditional remote access capabilities with advanced software services that offer network security and user administration.

The deal continues a string of high-performance switching equipment acquisitions by large networking firms. Lucent Technologies is the most recent player to gobble up one of the many gigabit start-ups, plucking Prominet in December for $200 million.

Bay's move follows its investment in NetSpeak earlier this month and the purchase of gigabit start-up Rapid City Communications last June, underscoring the company's desire to expand via acquisition.

Yago will keep its headquarters and its 50 employees in Sunnyvale, California.

New Oak's 43 employees will be swallowed by Bay's Internet/Telecom business group, with the start-up's president and chief executive, Jeff McCarthy, heading an extranet access division.