Alcatel to Acquire Newbridge for US$7.1 billion

Putting an end to months of speculation, French telecommunications giant Alcatel SA, the second-largest telecommunications company in Europe, unveiled on February 23, 2000 the terms of a deal to purchase Ontario-based Newbridge Networks Corp. Founded by telecommunications-guru Terence Matthews in 1986, Newbridge has been a key player in the Ottawa-region’s emergence as a significant force in the telecommunications field. Starting out with just 15 employees, Newbridge grew under Mr. Matthews to become one of the Canadian technology industry’s largest and best-known players with over 6,000 employees and approximately $1.8 billion in annual revenue. Recent poor earnings performances and a series of ill-fated alliances and acquisitions, however, forced the Newbridge board to place the company on the market in November 1999. Mr. Matthews, who holds 22 per cent of the Newbridge stock, stands to gain US$1.5 billion of Alcatel stock from the transaction.

Under the terms of the merger, agreed to by both companies’ boards, Newbridge shareholders will get 0.81 of an Alcatel American Depositary Share for each of their shares, valuing the transaction at US$7.1 billion. The deal is the latest in a series of acquisitions by Alcatel, which has spent US$8.5 billion in the past 17 months buying US data network equipment manufacturers in an effort to compete with US hardware leaders, Cisco Systems Inc., Lucent Technologies Inc., and Nortel Networks Corp. in the lucrative North American market.

Newbridge is a market leader in the production of asynchrous transfer mode switches (ATM), equipment that enables switching between voice and data transmission across large telecommunications networks. Its operations are expected to boost Alcatel’s existing network products, providing Alcatel with a much-needed presence in the ATM market and adding valuable Internet protocol (IP) technologies to Alcatel’s product line. Newbridge operations will merge with Alcatel’s Carrier Data Division to form the new Carrier Internetworking Division, which will be based in the Ottawa area and is expected to have combined annual sales on a proforma basis of more than US$2.5 billion.

The deal is expected to close in late May to early June 2000.

Stikeman Elliott are acting for Alcatel on the transaction, with a team that includes Simon A. Romano, Karen E. Jackson (corporate), Paul Collins (competition), John Lorito, Angelo Nikolokakis (tax), and Andrea Alliston (due diligence). Mr. Matthews is being represented by a team from Fasken Martineau DuMoulin LLP which includes Jonathan A. Levin, Leslie Rose, Cathy B. Singer, Gregory Ho Yuen and Stephen S. Ruby. Osler, Hoskin & Harcourt LLP are representing Newbridge. The Osler’s team is led by Craig Wright, supported by Elizabeth Walker in Ottawa and additional corporate assistance from Andrew Aziz and Monica Biringer on tax.