Sources: Nortel to snap up Bay by next month

Northern Telecom, Inc. is looking to purchase Bay Networks, Inc. within the next four or five weeks, according to Bay and Nortel business partners who requested anonymity.

Nortel would like to announce the Bay acquisition at the Supercomm `98 trade show in Atlanta the week of June 8, the sources said. These sources added that Nortel did indeed make an offer for Bay before last week's NetWorld+Interop `98 show in Las Vegas.

Reports circulated early this week that Nortel made this offer and that Bay rejected it for a higher price. This reported volley, which Bay and Nortel declined to comment on, boosted Bay's stock price by 16%.

The amount of the alleged offer is not known, but observers say it was between $32 and $35 per share, or $7.3 billion to $8 billion. Bay shares are currently trading at $26.38.

Observers believe Bay will agree to be acquired for $40 per share, or $9.1 billion. The company's market cap is currently $5.5 billion.

Nortel would like to grab Bay before October. October is when Nortel rival Lucent Technologies, Inc. could bid for Bay in a pooling of interest transaction, which may be preferable to a cash purchase for a deal of this size.

Because it is majority-owned by Canadian telecom giant Bell Canada Enterprises, Nortel is precluded from pooling stock to buy an American company. Pooling of interests allows companies to combine balance sheets and report higher earnings without tax impact. Lucent was prohibited from pooling for two years after being spun off from AT&T.

Nortel and Bay officials did not comment.

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