Lucent Buys Ortel for $2.95B

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Eager to tap the growing business of supplying cable
operators doing rebuilds, Lucent Technologies said last week that it agreed to buy laser
supplier Ortel Corp. for about $2.95 billion.

Lucent will partner with Ortel -- a developer of
optoelectronic components for cable-television networks -- to build high-capacity
networks, helping to meet a growing demand for next-generation services to the home, such
as Internet telephony and access.

The merger is expected to speed the transition of cable
networks from one-way broadcast capability to a two-way, fully interactive communications
medium.

Analysts said the acquisition represents a major push by
Lucent into the cable market.

"Lucent has been interested in expanding into
cable," said Mike Paxton, an analyst with Cahners In-Stat Group (a sister company to Multichannel
News
). "They've been poking around with different initiatives on how to do it,
and this seems like an answer for them."

Alhambra, Calif.-based Ortel is a market leader for lasers
that increase the bandwidth of existing cable networks. It currently supplies Motorola
Broadband Communications Sector (formerly General Instrument Corp.), Antec Corp. and other
cable mainstays.

The company is expected to strengthen Lucent through its
transmitter/receiver components, which are used in optical communications networks, and
its uncooled pump lasers, which Lucent will use in amplifiers for metropolitan fiber-optic
networks.

"The existing [cable] networks need to be able to be
upgraded to cope with existing capability," said Samantha Baxter, a spokeswoman for
Lucent's microelectronics group. "This acquisition allows Lucent to move into this
growth market."

Under the agreement, each share of Ortel will be converted
into 3.135 shares of Lucent stock. Based on Lucent's closing stock price of $57 Feb. 4,
the $2.95 billion deal would translate into $177.125 per Ortel share. Lucent's share price
dipped to $53.06 by last Wednesday's close, though.

Lucent expects the acquisition to close by midyear.

Soon after the deal was announced, speculation increased
that Lucent might be positioning its microelectronics group for a spinoff. Ortel and other
optical-networking companies have been among the most sought-after issues on Wall Street,
with telecommunications companies buying up their laser technology to accelerate
transmissions while holding down costs.

"It's very possible, but that would depend on the
return," Paxton said. "It would be expensive to split it off. I'm not sure in
the Lucent case, because the microelectronic portion of their business is very integral to
what their transmissions systems do."

Baxter said the Ortel acquisition shows that Lucent is
committed to growing its microelectronics division. "We're keen to have it stay
on," she added.

While the price tag was impressive, not everyone was sure
how Ortel would complement Lucent's existing array of manufacturing capabilities.

"They're paying a lot of money, but Ortel is not that
big in the cable industry," said Brice David, a senior consultant at Washington,
D.C.-based The Strategis Group. "A lot of systems are being upgraded … but they
tend to already be 60 percent to 70 percent upgraded. I don't see what gives them a
significant lead in any market."

David noted, though, that Ortel's relationship with
Motorola Inc. was a big plus. "That is a good company to be into," he said.

Through its partnership with Lucent, Ortel will get access
to different types of transmissions systems and a new engineering capability. "It
also gives them a deeper capital base," Paxton said. "By any stretch, they just
cut a great deal for their shareholders."

Ortel will become part of Lucent's
optoelectronics-component division, and Ortel CEO Stephen Rizzone will report to
optoelectronics president Dan DiLeo.

Ortel's 550 employees will remain at their current
locations. In addition to its U.S. presence, the company has international operations in
Sweden, Germany, France, Singapore and China.

As the deal beat drummed on last week, Akamai Technologies
Inc. -- which provides services that help to speed the transfer of text and graphics on
the Internet -- said it would buy data networking rival Intervu Inc., which provides
similar services for moving pictures and audio.

Cambridge, Mass.-based Akamai said it would acquire Intervu
in a $2.8 billion stock swap that would create a streaming-media giant.

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