Cabletron Systems (NYSE: CS) said Monday it was selling its FlowPoint subsidiary to Efficient Networks, Inc. (Nasdaq: EFNT) for about $861 million. Cabletron has also formed an alliance with Efficient to penetrate the DSL market.
Cabletron shares closed at 23 Friday, up slightly since September, when the stock was suffering after better-than-expected second quarter earnings and upgrades weren't enough to counteract a profit warning. Efficient Networks closed at 63 3/4, and has been going strong since its IPO.
FlowPoint is the leading developer of broadband routers, and holds number one market share in the xDSL router market. Cabletron will continue to focus on providing web caching, server load balancing, and multi-dwelling unit solutions, to service providers. The acquisition broadens Efficient's DSL product line and allows it to develop the next generation of DSL CPE, or Customer Premises Equipment, the company said.
Under the terms of the deal, Efficient will pay 13.5 million shares for FlowPoint, which, based on Efficient's closing price of $63.75 on Nov. 19 will value it at about $860.6 million. This makes Cabletron the largest shareholder in Efficient. FlowPoint has an annualized revenue run rate of about $40 million.
Through the OEM (Original Equipment Manufacturer) alliance, Cabletron gains access to more customer equipment --including DSL routers and modems-- while providing Efficient with the enhanced reach of Cabletron's large service provider sales force.
The companies' combined customer list represents the largest service providers including America Online (NYSE: AOL), Cisco (Nasdaq: CSCO), and Copper Mountain (Nasdaq: CMTN) among others.
The transaction is expected to close late in Efficient's second fiscal quarter ending December 31, and will be accounted for as a purchase and qualify as a tax-free reorganization.