EXHIBIT 99.2
BAY NETWORKS NORTEL
Northern Telecom
News Release
FOR IMMEDIATE RELEASE June 15, 1998
Nortel (Northern Telecom) and Bay Networks in US$9.1 Billion Transaction
Nortel's Acquisition of Bay Networks to Create a New Category of Company;
First to Offer Mission-Critical, Internet Protocol Integrated Networks
TORONTO and SANTA CLARA, CA - Nortel (Northern Telecom) (NYSE: NT/TSE: NTL),
one of the world's largest suppliers of digital network solutions, and Bay
Networks (NYSE: BAY), a leader in the worldwide data networking market, today
announced they have entered into a definitive merger agreement through which
Nortel will acquire Bay Networks. The estimated US$9. l billion transaction
is the largest to date among telecom and data network systems providers.
The transaction creates a new category of company that will be the first
to deliver missioncritical Internet Protocol (IP) integrated networks that
will reach anyone, anytime, at any place in the world. These next-generation
networks will unleash innovation and enable customers to gain competitive
advantage and realize their full business potential.
The combined businesses will provide these networks, optimized for IP,
which carry voice, data and video from desktop to desktop across LAN (Local
Area Network), WAN (Wide Area Network) and carrier backbones, delivering new
levels of personalized service, flexible access, cost-efficiency,
scalability, security and adaptive performance with the reliability that
customers demand.
On consummation of the merger, Bay Networks will continue to operate as
a wholly-owned subsidiary of Nortel. Under the terms of the merger
agreement, Bay Networks shareholders will receive a fixed exchange ratio of
.60 of a Nortel common share for each share of Bay Networks common stock. As
a result of the merger, Nortel expects to issue approximately 134 million
common shares in the aggregate with respect to Bay Networks' outstanding
shares. Based on the closing price of US$63.69 per share of Nortel (as of
Friday, June 12, l 998), this represents a price of US$38.2 l per share of
Bay Networks and US$9. l billion for the entire transaction, on a fully
diluted basis. On the closing of the transaction, Bay Networks shareholders
will own approximately 2 l percent of Nortel. The boards of directors of the
two companies have approved the transaction.
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Upon completion of the transaction, Nortel's Enterprise Data Networks
business will be integrated with Bay Networks' operations. John Roth,
currently president and chief executive officer of Nortel, will remain chief
executive officer and a director of the corporation. Dave House, chairman,
chief executive officer and president of Bay Networks, will become president
of Nortel and be appointed to the Nortel Board of Directors. Bay Networks
will act as the focal point for Nortel's current and future data networking
business.
"Dave House will bring IP networking expertise to all of Nortel's lines
of business, and that will benefit customers of our carrier, broadband,
wireless, and enterprise operations," said Mr. Roth.
The consummation of the merger is subject to certain customary
conditions, including approval by shareholders of Bay Networks, compliance
with the Hart-Scott-Rodino Antitrust Improvements Act, and certain other
regulatory filings and approvals. The transaction, which is expected to
close late in the third quarter of 1998, will be tax-free to Bay Networks
shareholders and will be accounted for by Nortel using purchase accounting.
A New Category of Company
"This transaction creates a new category of company suited to this era -
- - an era of end-toend, mission-critical IP networks," said Mr. Roth. "Our
combined business will be ideally constructed to meet this need, in terms of
complementary expertise, products, and distribution. Because of the lack of
overlap, we can focus strictly on meeting the needs of our customers, not on
rationalizing the combined business. With this transaction, Nortel and Bay
Networks will effectively break out and redefine the center of the
information industry - the unoccupied space where data and voice networks,
driven by the Internet, are expected to converge," he said.
"This is another step in the direction in which we have been moving all
along," said Mr. House. "The Web has changed everything. The public network
is moving rapidly from voice to data. A new class of company must emerge to
meet the demand for IP technology and networking expertise, with the ability
to build carrier-class, mission-critical networks. That company is Nortel
and Bay Networks. Together, we will create next-generation networks that
spark the next wave of innovation and revolutionize the way we work, learn
and play."
Profile of the Combined Business
This new category of company will combine the best of both worlds - the
time-to-market and agility demanded in the enterprise data market, and the
backbone capacity and ruggedness required in the telecommunications network
environment. It will incorporate the best practices of both companies and
focus on mutual strengths - a shared vision of network evolution, emphasis on
providing value to customers and a commitment to anticipate and lead
marketplace needs.
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New network solutions must provide new value proposition -- a
boundary-less network offering that encompasses Enterprise LANs, WANs, edge
gateways, service provider access, collect and backbone networks, end-to-end
flow, and policy and service management. Nortel will deliver this value
proposition to both enterprise and carrier customers.
Following the merger, Nortel will be able to reach a wider range of
customers through one of the most diverse distribution networks in the
industry. Nortel will build on Bay Networks' well-established channels of
distribution, as well as its significant presence in the enterprise and
Internet Service Provider markets. Nortel will also capitalize on its
growing direct sales force and strong distribution channels for a full range
of the combined companies' networking systems products, including Bay
Networks' Accelar switch routing for high performance backbone networking and
gigabit LANs, and Nortel's Passport ATM networking products. By enhancing
customer choice and availability, Nortel expects to be able to accelerate the
deployment of Webtone to a broader range of customers worldwide.
The transaction will create a US$ 17.7 billion entity (based on 1997
calendar sales) that will operate globally and have more than 80,000
employees. Nortel's premise is to leverage the financial and strategic
strengths of both businesses, and create long-term growth that will be
superior to what either Nortel or Bay Networks might otherwise achieve on a
standalone basis. Before acquisition-related items, the transaction is
expected to be dilutive in 1998 and slightly accretive to Nortel's earnings
per share in 1999.
Financial Advisors, Other Information
Deutsche Bank Securities Technology Group acted as financial advisor to
Nortel for this transaction, while Morgan Stanley represented Bay Networks.
Nortel works with customers in more than 150 countries and territories
to design, build and integrate their communications products and advanced
digital networks. Nortel had 1997 revenues of US$15.5 billion, and has
approximately 73,000 employees worldwide.
Nortel has been a major player in the WAN data market and 1997 revenues
from its data and multimedia portfolio totaled US$785 million. The
acquisition of Micom Communications Corp. in June 1996 significantly
strengthened Nortel's access portfolio. Nortel has since taken several
additional initiatives, including, in 1998, its investment in Avici Systems,
Inc. (terabit routing), and the acquisition of two leading-edge start-up
companies - Broadband Networks Inc. (broadband wireless) and Aptis
Communications, Inc. (remote access). Entrust Technologies Inc., a Nortel
subsidiary, has been a pioneer in the area of Internet security. Nortel has
also become the leading provider of optical networks. Over 70 percent of
backbone Internet traffic in North America is transmitted over Nortel optical
systems. In addition, Nortel is one of the world's largest providers of
wireless systems infrastructure, and is well positioned to bring to market
broadband wireless systems for data, voice, and Internet access services.
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Bay Networks, Inc. is a leader in the worldwide networking market,
providing a complete line of products that serve corporate enterprises,
service providers and telecommunications carriers. The company offers frame
and ATM switches, routers, shared media, remote and Internet access
solutions, IP services and network management applications, all integrated by
Bay Networks' Adaptive Networking strategy. Bay Networks markets its
products and services around the world, providing 7x24 support coverage.
- end
For more information:
Nortel Bay Networks
Peter Janecek Mike Deshaies
Media Relations Media Relations
(905) 863-6251 (408) 495-3292
peterjanecek@nortel.com mdshaies@baynetworks.com
Pager: (416) 378-8176
Bob Kaye Sandra Toms
Investor Relations Investor Relations
(905) 863-6044 (408) 495-1181
bob.kaye@nortel.com stoms@baynetworks.com
Or visit Nortel's website at www.nortel.com
Or visit www.baynetworks.com
Or visit www.merger-news.com