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Nortel sells Alteon technology to Radware

Nortel Networks Corp. this month sold application delivery technology to Radware Ltd. for a fraction of the $6 billion-plus price it paid for its developer, Alteon WebSystems Inc., in 2000.

Struggling Nortel had announced Feb. 19 that it had agreed to sell two application accelerators, five application switches and one virtual services switch to Radware for $17.65 million.

Some analysts said they were amazed by the disparity between the value of the Nortel-Alteon stock deal and the price Radware paid for the former Alteon technology.

“Nortel sold Alteon off to Radware for a small fortune, but the problem is that Nortel originally bought Alteon for a large fortune,” said Zeus Kerravala, an analyst at Yankee Group Research Inc.

A Nortel spokesman, however, argued that the Alteon technology sold to Radware makes up a “small part” of the technology and intellectual property gained in the original purchase. He noted that Alteon provided Nortel with workers, technology and intellectual property. “Just a few select technologies” were sold to Radware, he added.

The spokesman also noted that stock prices have changed drastically over the past nine years. “I don't want to say it was funny money back then, but it was a stock swap and not a cash deal,” said the spokesman, Pat Cooper.

Kerravala said some reports at the time of the Alteon purchase actually put value of the deal at more than $7 billion. “Nortel turned $7 billion into $17 million,” he said. “It's the epitome of why Nortel is failing.”

Kerravala said that the Alteon deal provided Nortel with market-leading technology, but that the telecommunications company “turned gold into dust” by poorly administering the complex integration of the two companies.

Even with several management changes at Nortel since the Alteon purchase, the company should have been able better integrate Alteon's people and technology, Kerravala said. The inability to do that, he added, was clearly part of the reason why Nortel has sought and received Chapter 11 bankruptcy protection.

The Nortel spokesman, however, contended that Alteon technology not included in the Radware deal has become “an anchor for technology development at Nortel. There have been a lot of uses [of Alteon technology] inside Nortel.”

He said stockholders should “stay tuned” for the results of that development.

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