Cabletron Systems, Inc. yesterday said it will acquire routing and switching equipment maker Yago Systems, Inc. in exchange for 6.1 million shares of Cabletron common stock.
Cabletron already holds a 25% stake in privately held Yago, which has about 50 employees and makes scalable, multilayer switching routers for Gigabit Ethernet and Fast Ethernet networks, Cabletron officials said.
Cabletron expects the value of its shares to increase from $14.25 today to $35 per share within 18 months of the closing of the acquisition, bringing the projected value of the deal to $213 million. If the stock value does not increase to $35 after 18 months, Cabletron has agreed to issue up to 5.5 million additional shares of Cabletron stock to the Yago shareholders in order to bring payment up to $213 million, said Don Reed, Cabletron's president and CEO, yesterday in a teleconference announcing the deal.
The acquisition of Yago, based in Sunnyvale, Calif., and in particular its Multilayer Switching Router (MSR) product family, will help Cabletron secure more business from Internet service providers and large-scale enterprise customers, Reed said.
Yago's MSR technology was designed to help traditional routers handle the increasingly high volumes of data that move through communications backbones. In addition to Layer 2 and Layer 3 switching, the routers can allocate bandwidth, diagnose problems and control access of TCP/IP application flows by switching packets at Layer 4, officials said.
"We have high expectations of this product adding significantly to our revenue streams," Reed said. He declined to offer projections.
Yago products will begin shipping through Cabletron during the first half of 1998, Reed said. The company will detail how it plans to integrate the Yago technology into its product line at the upcoming ComNet'98 trade show in Washington, D.C., which begins Jan. 27, Reed said.
Yago's employees will remain at the Yago facility in Sunnyvale, working closely with Cabletron engineers on the integration of the two products. No layoffs are foreseen at this time, Reed said.
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