Struggling Cabletron Systems has looked an acquisition target for sometime now but yesterday it announced it was to acquire privately held Gigabit Ethernet and switch start-up Yago Systems Inc.
Under terms of the agreement, which includes a possible two stage share issue to Yago shareholders, Cabletron will issue 6 million shares of stock to the shareholders of Yago in exchange for the 75% of capital stock in Yago, that Cabletron does not already own. At Cabletron closing share price yesterday of $14.25 per share this values the remaining 75 % of Yago at $64.13m. However, bearing in mind that for the over six months Cabletron’s stock price has been heading strongly south, there is a condition to the deal that says Cabletron will issue up to an additional 5.5 million shares of its stock in the event the shares originally issued in the transaction do not attain a market value of $35 per share 18 months after the closing of the acquisition. Yago is one of a number of start-up companies promising to deliver switch routers which can offer greater speed than traditional routers by implementing routing functionality in high-speed ASIC technology. The deal continues a string of high-performance switching start- up acquisitions by large networking firms. As well as Bay Networks $156m purchase of switch maker New Oak Communications, Lucent Technologies paid around $200m of Lucent stock in December to acquire Prominet Corp a developer of gigabit ethernet LAN switch company. According to Cabletron, Yago’s MSR line of MultiLayer Switching Routers, targeted as backbone switches for the enterprise and ISP market, will deliver routing throughput between 15 and 30 million packets-per-second, delivering wire-speed routing at gigabit rates. Cabletron says it will integrate Yago products with its existing SmartSwitch, Spectrum and SecureFast lines, although it is not ready to say how this will be done yet. It also said it may sell them as separate products. Products are expected to begin shipping through Cabletron in the first half of this year. Yago was founded in 1996. Cabletron closed yesterday up $1.3125 before the details of the deal were announced.
