With the deal, Nortel will add more Internet protocol (IP)-based systems expertise to its portfolio of data and voice-based equipment.
The move caps a busy day for acquisitions in the data networking business. Today Cisco Systems spent $2 billion on voice call routing software firm GeoTel Communications, while wireless giant Ericsson gobbled up Torrent Networking Technologies for $450 million.
Shasta is preparing to ship its first product in the third quarter of this year. The company is prepping a combination of hardware and software that will allow service providers to offer a more sophisticated set of services to customers.
Under terms of the deal, Shasta will receive $318 million worth of Nortel stock and up to $22 million in cash, dependent on certain conditions related to Shasta?s business performance.
Nortel executives said the deal will have no material impact on fiscal 1999 earnings, but will be accretive thereafter.
The Shasta acquisition will give Nortel an advantage in the emerging market for technologies that facilitate IP-based services, executives said.
Clarence Chandran, president of Nortel Networks' carrier packet solutions division, said the purchase will help his company "redefine the economics" of the market.
Nortel purchased privately-held Cambrian Systems last December for $300 million in cash.
Shasta's 70 employees will continue to be based in Sunnyvale. The transaction is expected to close within 30 days.