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Cadence to buy Lucent design unit

Cadence and Lucent jointly announce a pact under which Cadence will acquire the Bell Labs Design Automation Group.

Circuit design software maker Cadence Design Systems and Lucent Technologies today jointly announced an agreement under which Cadence will acquire the Bell Labs Design Automation Group.

The deal includes an agreement that Lucent will purchase BLDA's electronic design automation services for three years. Terms of the acquisition and BLDA's continued services to Lucent were not disclosed. The deal is subject to regulatory approval.

Analysts who follow Cadence estimate the deal to be worth about $50 million.

"It's a good accretive deal for Cadence," said Raj Seth, an analyst at Cowen & Company. "The company is likely to recoup a sizeable portion of the [estimated $50 million] through the service contract."

The deal did not have much of an impact on Cadence shares, which dropped 50 cents in afternoon trading. The stock was at 24, at the same level as yesterday's closing price, and has traded as high as 39 and as low as 21.31 during the past 52 weeks. Shares of Lucent were down 2 percent at 81.

BLDA, Lucent's semiconductor design unit, has developed design verification tools and methods used internally at Lucent and by a growing number of other semiconductor vendors and systems manufacturers. This system checks whether the designed circuits will actually work.

"Cadence has the ability to link those technologies to other tools in their portfolios," Seth said.

Tool-development is not a core activity for Lucent, and the company "obviously made the decision to spin their group off and buy the technology externally over time," he added.

The two companies also announced a joint development program between Cadence Labs and Bell Labs research organizations to try to advance state of the art chip verification and other advanced tools for next-generation applications.

The deal also allows Lucent to focus on its core telecommunication equipment business by divesting itself of its chip-design software unit.

"This is a smart move for both companies, one that allows each of us to focus on what we do best,'' Ernie Rodriguez, vice president of Advanced Technologies at Lucent's Bell Labs, said in a statement. "This move is consistent with our efforts to focus the full complement of technology and design talent at Lucent on what we do best--making the things that make communications work."

As a result of the acquisition, more than 100 BLDA employees, including software engineers, will join Cadence.