Lucent to Acquire Optical Equipment Maker Chromatis

Lucent Technologies Inc., the No. 1 maker of telecommunications equipment, said Wednesday that it will buy Chromatis Networks for $4.5 billion in stock to fill a gap in its fiber-optical networking equipment portfolio.

Privately held Chromatis makes optical equipment for cities or metropolitan areas, which has been a weak spot in Lucent’s product mix.

Chromatis’ Metropolis products allow traffic, such as voice, data and video, to travel efficiently on crowded urban networks and let customers use optical wavelengths only when and where they are needed.

Some analysts slammed the $4.5-billion price tag as too high for a start-up without significant revenue or a commercially available product. Chromatis’ product is being tested by companies such as Qwest Communications International Inc. and will be commercially available this summer.

“It’s a lot of money, especially given the tech [stock] rout this spring. You’d think acquisition prices would go down too,” said one industry analyst who declined to be named.

Lucent shares fell 50 cents to close at $57.25 on the New York Stock Exchange.

Lucent defended the purchase price, saying the deal would strengthen its arsenal of products in the competitive fiber-optic market, even though the deal is expected to dampen its pro forma profit by about 2 cents a share in fiscal 2000 and about 5 cents a share in fiscal 2001.

Lucent and its chief rivals, Nortel Networks Corp. and Cisco Systems Inc., have bought several optical-networking companies in the last several months.

Cisco’s recent $6.9-billion acquisition of Cerent Corp., as well as the rich stock prices of other optical-networking companies, have raised the takeover price for early-stage companies, analysts said.

The price also may have escalated as Chromatis weighed bids from several suitors, analysts said.

Chromatis, based in Herndon, Va., was founded in 1998 by Israeli engineers and telecommunications executives. The company has about 160 employees and has a research-and-development center in Tel Aviv.

Under terms of the deal, Murray Hill, N.J.-based Lucent said it would buy Chromatis for about 78 million of its shares. The shares are valued at about $4.5 billion, based on Lucent’s Tuesday closing price of $58.19. Lucent already holds a 7% stake in Chromatis.

Lucent said it will continue to pursue acquisitions in the optical- networking arena to gain technology and crucial engineering talent to get new products to customers faster.

Lucent will be looking at optical-networking products for businesses or so-called enterprise markets that integrate various technologies such as IP (Internet protocol) optical technologies, said Harry Bosco, vice president of Lucent’s optical-networking group.

Lucent, which had some manufacturing constraints in the beginning of the year, lags Nortel in the optical-networking market and may need several more acquisitions to close that gap, analysts said.