SANTA CLARA, Calif. -- Wellfleet Communications Inc. said yesterday that it plans to buy SynOptics Communications Inc. in a stock transaction worth about $1.03 billion, moving to keep up in the frantically competitive computer network equipment market.
The merger would create one of the largest computer-network equipment companies, with combined revenue exceeding $1 billion a year.
The transaction comes at a time when dozens of computer network companies are developing products and technologies that would make today's equipment obsolete. Networking stocks tumbled in recent months after analysts lowered investment ratings on the No. 1 company, Cisco Systems Inc., citing competitive pressures.
The acquisition of SynOptics is "somewhat of a desperation move, not a move of strength," which explains the relatively low purchase price of SynOptics, said Paul Johnson, analyst at Robertson Stephens.
"There is starting to be overlap in the technology behind their products, and there was increasing competition between the two," Mr. Johnson said.
Under terms of a definitive agreement between the two companies, SynOptics shareholders will receive 0.725 shares of Wellfleet stock for every share they own. Based on the closing price of Wellfleet shares yesterday, the transaction values SynOptics at about $14.55 a share.
As recently as April 11, SynOptics stock traded as high as $22.
Yesterday, SynOptics shares fell $1.125, to $14.625, on Nasdaq volume of 1.84 million shares. The stock fell because of the relatively low proposed price, analysts said.
Wellfleet shares plunged $5.1875, to $20.0625, on Nasdaq volume of 2.47 million shares, making the stock the most actively traded in the U.S.
The merger would let Wellfleet, a maker of computer network equipment, acquire technologies from SynOptics to stave off major competitors such as Cisco and Cabletron Systems Inc.
SynOptics, based in Santa Clara, excels at making equipment call hubs, which allow computers within an office to communicate with each other. Wellfleet, based in Billerica, Mass., specializes in devices called routers, which link computer networks of far-flung offices.
Used together, the products will allow large corporations to set up networks that let their employees exchange electronic mail, share documents and work together on projects through their computers.
In the first quarter, SynOptics' net income fell 27 percent, to $21.9 million, or 32 cents a share. Sales in the quarter rose 5.6 percent, to $161.1 million.
Wellfleet had net income more than double in its third fiscal TC quarter, to $16.4 million, on booming sales. Revenue also more than doubled, to $103.8 million.