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Alcatel To Buy Xylan For $2B

In a move aimed at gaining a bigger chunk of the Internet business and the U.S. market, French telecommunications company Alcatel SA said Tuesday it is buying California-based Internet equipment maker Xylan Corp. for $2 billion.

Serge Tchuruk, chairman and CEO of Alcatel (ALA) - Europe's number two phone-equipment maker - said: "The combined Alcatel/Xylan strengths in voice and data networking will constitute a very powerful force in world corporate markets."

The acquisition, already approved by the boards of both companies, is the culmination of a four-year partnership. The deal is seen as being a big boost for Alcatel because it will give it an important inroad into the fast-growing Internet arena and the U.S. market. Xylan makes switches which companies use to build high-speed data systems.

The purchase will strengthen the part of Alcatel's business which links computers to phone networks and the Internet.

The French company, which already owned 6 percent of Xylan (XYLN), said it will pay $37 for each remaining share. That represents a 37 percent premium over Monday's closing price. The offer will begin by March 8.

Olivier Houssin, executive vice president of Alcatel Telecom, said the Xylan purchase will give the French company access to the enterprise market in in the U.S. and "will allow our group to play a leading role in the integrated voice/data private networking in North America."

Xylan, founded in 1993 and based in Calabasas, Calif., is currently working with more than 100 carrier customers, including BellSouth Corp. (BLS) and Bell Atlantic Corp. (BEL), Teleport and Rhythms in the U.S. and Telewest Communications (TWSTY) in the U.K. Xyland has more than 4,000 customers and has revenues of some $348 million. Alcatel has a presence in over 130 countries.

The markets have suspected over the past two weeks that a suitor might emerge for Xylan. Its shares have gained 40 percent over that time. On Monday, the shares gained 1.7 percent, or 7/16 to 26 15/16.

Written By Suzanne Miller, London bureau chief for CBS MarketWatch