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Nortel to buy Xros for $3.25 billion

Nortel Networks (NYSE: NT) said Tuesday it would buy Xros (pronounced KY-ROS), a photonic switching company, for $3.25 billion.

Nortel shares gained 4 13/16 to 126 1/2 in morning trading. Nortel shares have been surging on news of the company's strong fourth quarter earnings.

The acquisition of Xros is another key move in Nortel's strategy to be an optical networking leader.

"We view this to be a significant acquisition," said Merrill Lynch analyst Tom Astle, who maintained a "buy" rating on the stock. Astle also praised Nortel's aggressive acquisition stance.

And Nortel has been aggressive. Nortel bought DSL-start-up Promatory Communications for $778 million in January.

Xros' silicon-based micro-mirror technology will allow data to be switched through large-scale optical networks in the form of light. It provides the capability to scale network hubs with hundreds of times greater capacity than with today's cross-connects. Combining this technology with Nortel's ultra-long-reach technology, the Qtera ULTRA, will give it the capability to deliver an all-optical network, the company said.

Xros' technology is designed to operate at today's industry standard, 10 Gigabits per second (Gbps), as well as the future Optical Internet speeds of 40 Gbps and 80 Gbps. Nortel said it plans to introduce faster products next year.

The deal is expected to lower Nortel Networks earnings per share slightly in calendar year 2000 and add to them in 2001, excluding acquisition-related charges, the company said. The acquisition will not impact Nortel Networks previously-announced financial guidance.

The acquisition will be made in Nortel shares on a fully diluted basis, and is expected to close in the second quarter of 2000. Based upon a determined price of Nortel Networks common shares of about $118.12, the acquisition will result in Nortel Networks issuing approximately 27.5 million shares on a fully diluted basis.