Chronic under-achiever Cabletron Systems Inc has taken a huge leap forward with the acquisition of Digital Equipment Corp’s network product division for $430m in a undisclosed mixture of cash, shares and product credits. According to Cabletron, the acquisition will boost its international revenues by 35%-40% and double its revenues through indirect channels. The deal is Cabletron’s first under new chief executive Don Reed, who was brought in from Nynex Corp to arrest the company’s relative decline in the networking market. But, although there is some talk of rationalizing product lines from the two companies a few years down the line, Cabletron looks to being buying the business to be run at arm’s length. Eager to keep DEC’s user base on board, Cabletron says it will run the DEC unit as a separate entity called the Digital Network Products Group: A Cabletron Systems Company. The unit will be responsible for providing current and future Digital-branded network products, which Digital will sell to customers in addition to selected products from the Cabletron product line. Cabletron even says it will take on the 200 or so direct salesforce from DEC. For its part Digital says it will re-sell the DEC badged equipment. It has made a commitment of $1bn in sales over the next three-and-a-half years. The $430m acquisition of Digital Equipment Systems network product division includes $130m in cash and stock when the deal closes. The deal sees Cabletron gaining its own ATM line, however, the company says this will not affect its existing re-sale agreement with ATM developer Fore Systems Inc. For DEC, the sale of the unit which had been expected for some time (NBD 11/14/97) is another step to sell-off those parts of the business that it says do not fit its services-centric future. DEC has just moved out of chip manufacture after a $700m deal with Intel Corp. Unlike many of the units sold off over the past few years under CEO Robert Palmer the networking unit was believed to be a strong area for the company. According to Palmer It (networking products) has been a successful area. We are not divesting ourselves of the networking business, but the networking products business. You need a critical mass larger than we were able to achieve on our own.” Palmer also said that the Cabletron deal marked the end of the company’s divestment strategy and that DEC may even be in the market for modest acquisitions.
Under the agreement, which still needs US government approval, DEC will hand over its network products manufacturing, design and sales units but retain the internet and web server product development and its network research laboratories in Palo Alto, California.