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Nortel-Clarify deal proving beneficial for both stocks

Both the networking equipment maker and the customer relationship management company see their shares more than double since Nortel's October buyout announcement.

Kim Girard
Kim Girard has written about business and technology for more than a decade, as an editor at CNET News.com, senior writer at Business 2.0 magazine and online writer at Red Herring. As a freelancer, she's written for publications including Fast Company, CIO and Berkeley's Haas School of Business. She also assisted Business Week's Peter Burrows with his 2003 book Backfire, which covered the travails of controversial Hewlett-Packard CEO Carly Fiorina. An avid cook, she's blogged about the joy of cheap wine and thinks about food most days in ways some find obsessive.
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Kim Girard
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Nortel Networks could be the best thing that ever happened to Clarify shareholders, and the two companies' buyout agreement hasn't exactly hurt the networking equipment maker's stock either.

Nortel's October 1999 announcement that it would acquire Clarify sent the customer relationship management company's shares soaring--more than tripling to $156 at today's 1 p.m. PST close of regular trading from $45 on the day the deal was announced.

Acquisitions typically pull the buying company's shares down---as has been the case with AOL, which has dropped since announcing a planned merger with Time Warner--but Nortel too has surged, buoyed by strong financial results and plans to expand. The Brampton, Ont., company's stock has more than doubled, to $120.50 at the close of regular trading today from about $52 a share some four months ago.

"With Nortel, the good news overwhelmed the potential dilution of shares," said Tom Burnett, president of New York institutional research firm Merger Insight. "Nortel is expanding and undergoing growth of revenues. All that good news came out and pushed (any dilution) aside."

Shareholders are expected to approve the acquisition at a March 16 meeting.

At the time the agreement was announced, Nortel said it would exchange 1.3 shares of its stock per share of Clarify, valuing the purchase at $2.1 billion. Based on today's closing price, however, that value has been bumped up to about $3.7 billion, an increase of 76 percent.

Nortel's climb has been fueled by its strong performance as well as the general demand for networking companies. Last month, for instance, Nortel announced a 40 percent increase in fourth-quarter profits and its second stock split within a year.

Yesterday, Nortel said it will spend $260 million and add 3,400 people to meet demand for its fiber-optic network equipment. Fiber-optic products made by Nortel and its rivals are used by service providers to build higher-speed networks.

Patrick Mason, a financial analyst with E*Offering, the investment bank of E*Trade, said he believed the Clarify deal made sense for Nortel from the start.

"Clarify is in a very hot space and they're the No. 2 player and they're growing at 70 percent," he said.

Unlike many start-ups, Clarify makes money and has an established customer roster, he said. "Relative to many other companies that are going public, Clarify is a real company," he added.

Clarify makes software that automates a company's sales, marketing and customer call center needs. The San Jose, Calif.-based company competes in the growing front office software market, led by Siebel Systems.

Nortel plans to integrate Clarify's software with its existing call center products. Clarify is expected to remain an indepedent subsidiary of Nortel after the merger is completed.