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Tellabs to buy AFC for $1.9 billion

When the deal closes, Advanced Fibre Communications, a maker of high-speed Internet access equipment, will be part of one of the world's largest telecommunications gear suppliers.

Tellabs, a maker of telecommunications equipment, said on Thursday that it plans to buy Advanced Fibre Communications for roughly $1.9 billion in cash and stock.

Tellabs is one of the largest providers of digital cross-connects, which are products that aggregate traffic from telephone carriers' access networks. The company's gear is used in most telephone networks in the United States and other countries.

The company plans to use AFC, one of the leading vendors of high-speed Internet access equipment, to help boost its presence in the broadband equipment market. AFC has already secured a key contract with regional Bell operator Verizon Communications, which plans to use the AFC gear to build a fiber-optic network to serve homes and businesses.

"Together, Tellabs and AFC create a strategic global telecom equipment supplier that will lead the industry's shift to broadband data with end-to-end access and transport solutions," Krish Prabhu, chief executive officer and president of Tellabs, said in a statement. "Marrying the leader in access with the leader in transport positions us to grow with our customers in the industry's sweet spot of broadband services."

Prabhu, formerly a top executive at Alcatel, joined Tellabs in February, succeeding the company's founder, Michael Birck, as CEO.

Under deal terms, AFC shareholders will receive 1.55 shares of Tellabs common stock and $7 in cash for each AFC share. Upon transaction completion, Tellabs stockholders will own approximately 75 percent of the company, and AFC stockholders will own 25 percent.

After the deal closes, AFC Chief Executive John Schofield will become chief operating officer and a director of Tellabs. The Tellabs board will include three additional board members from AFC, including Schofield. The transaction is expected to be approved by regulators and shareholders in the second half of 2004.

The combined company will employ about 4,100 people, including nearly 1,000 in international locations. It will have research and development centers in California, Florida, Illinois, Texas, Virginia, Denmark and Finland, as well as 41 sales offices in 29 countries.

Like other telecommunications equipment companies, including Alcatel, Lucent Technologies and Nortel Networks, Tellabs has been shifting its focus away from traditional circuit-based products and toward products that support Internet Protocol and multiprotocol label switching (MPLS).

In May of last year, the company acquired Vivace Networks, a San Jose, Calif.-based start-up that builds MPLS gear.