Lucent to buy Excel for $1.7 billion

Lucent Technologies Inc. (NYSE: LU) agreed Wednesday to buy Excel Switching Corp. (Nasdaq: XLSW), a maker of programmable switches for telecommunications service providers, for $1.7 billion in stock.

Shares in the Hyannis, Massachusetts-based Excel jumped 7 3/8 to 34 15/16 in early trading. Lucent was off 1 3/8 to 65 1/8.

Based on the $66.50 close of Lucent shares on Tuesday, the deal is worth $37 an Excel share, a 34 percent premium to Excel's closing price Tuesday. Under the terms of the deal, each share of Excel will be converted into 0.5580 shares of Lucent.

The latest in its spate of acquisitions should help Lucent, the No. 1 telecommunications equipment maker, to assist service providers in bridging networks based on traditional, circuit-switched technology and new networks more suited to data transmission.

Excel's programmable switches -- a fast-growing piece of the telecommunications equipment market -- are targeted mainly at new service providers and also at traditional service providers entering new markets.

In contrast to traditional telecommunications switches, Excel's programmable switches can much more easily incorporate new features and can operate across multivendor networks. According to Lucent, about 100 independent developers are using the Excel platform to create new services such as prepaid calling cards and unified messaging services. Excel also offers the Excel Media gateway, an Internet Protocol telephony gateway.

The Excel purchase is just the latest for Lucent.

Lucent snapped up Xedia Corporation, a privately held developer of Internet access routers for wide area networks for about $246 million just last week, in the most recent purchase in its $5 billion spree on smaller companies.

Lucent closed its $24 billion purchase of Ascend Communications in June, and since then has been snagging companies, such as International Network Services (Nasdaq: INSS) to target the growing market for next-generation networks and build ammunition as it takes on rival Cisco Systems Inc. (Nasdaq: CSCO).

Excel is a premier company in programmable switching, and has one of the largest communities of application developers in the industry, said Dan Stanzione, Lucent's chief operating officer, in a statement.

Lucent plans to wrap up the deal, subject to the approval of Excel's shareholders, in its fiscal first quarter, and to account for it as a pooling of interests. Murray Hill, N.J.-based Lucent said the merger will have no effect on earnings in fiscal 2000.

Bob Madonna, Excel's chairman and chief executive, who still owns a majority of the shares, will take a position at Lucent supporting the company's programmable networking efforts, which will become a separate unit, Lucent said. Excel will keep its Hyannis headquarters.

The announced acquisition comes as disappointing news to several start-ups in the early stages of releasing next-generation switches designed to assist carriers and service providers in transitioning voice traffic to data networks. These so-called convergence switches, from Convergent Networks, Salix, Sonus, Tachion Networks and others, are targeted at the same segment of the market as Excel's line of products.

Analysts speculated that Lucent was in the market for one of these new players, which are expected to have a difficult time establishing a presence in a market dominated by Lucent, Cisco Systems, Nortel Networks and other telecommunications equipment heavyweights. The emerging convergence market has already seen significant consolidation. Cisco purchased TransMedia Communications earlier this year and Siemens acquired Castle Networks in March. Nortel is rumored to have be in extended negotiations with Salix for the past few weeks. Neither company, however, will comment on the acquisition rumors.

With the purchase of Excel, however, Lucent is now scratched from the list of potential suitors for a convergence switch start-up.

Inter@ctive Week's Todd Spangler and Joe McGarvey contributed to this report.