Lucent Technologies to Acquire Excel Switching, A Global Leader in Programmable Switching Systems - Company Business and Marketing

Cambridge Telcom Report, August 23, 1999

Lucent Technologies (NYSE: LU) Wednesday announced it has agreed to acquire Excel Switching Corporation (Nasdaq: XLSW), of Hyannis, Mass., a leading developer of programmable switches, one of the fastest-growing segments of the communications industry.

Excel's open, programmable switching platforms serve as a bridge between circuit and packet networks and enable service providers to quickly enter new markets with applications created by software developers from around the world.

Under terms of the merger agreement between Excel and Lucent, each share of Excel will be converted into .5580 shares of Lucent. Based on yesterday's Lucent stock closing price of $66.50, the transaction would be valued at about $1.7 billion or $37 per Excel share.

The transaction is expected to be completed during Lucent's first fiscal quarter of 2000, which ends December 31, 1999, and is intended to be accounted for as a pooling of interests. Lucent expects the merger to be neutral to earnings in fiscal 2000.

"For service providers, time to market counts," said Dan Stanzione, executive vice president and chief operating officer of Lucent Technologies. "With Excel, our customers will have one of the fastest ways to bring new voice and IP services to market. They are a premier company in programmable switching with more than eleven years of experience and have one of the largest communities of application developers in the industry."

More than 100 software developers, value-added resellers and original equipment manufacturers already are creating enhanced services and infrastructure applications on the Excel platforms. Examples of enhanced services include prepaid calling card, follow-me and unified messaging. Infrastructure applications include gateways for international networks, IP networks, virtual private networks, and tandem switches that link multiple local office switches. Excel's platforms also support wireless local loop and remote access applications.

Excel's programmable switches are targeted at new service providers and established service providers entering new markets. It's expected that nearly 1,000 new service providers will enter the communications market over the next few years. Lucent estimates the demand for programmable switches is growing by more than 20 percent annually.

The scalability of Excel's platforms provides a cost-effective way for service providers to enter new markets starting with just several hundred ports and quickly expanding to 10,000 or more ports. Additionally, Excel's platforms can evolve as technology changes because they are programmable and can operate across multi-vendor networks. The company also addresses the IP services market with the Excel Media gateway, a carrier-class IP telephony gateway and its application development partners program.

Excel's platforms also are suited for entering international markets because they operate with multiple protocols and standards. Today, Excel has 4,300 systems installed in 70 countries. Nearly 50 percent of its systems are installed outside of the United States.

"Lucent recognizes that third-party developers and value-added resellers are a critical innovation engine for this industry," said Bob Madonna, Excel chairman and chief executive officer. "For more than a decade, we have been recruiting, retaining and building relationships with these developers, who now will benefit from Lucent's global channel for sales and support. And Lucent's customers will be able to unleash the capabilities of their networks with a rich array of new applications."

"Excel brings an impressive network of service providers, VARS and OEM partners to Lucent," said Bob Holder, president of Lucent's Switching and Access Solutions unit. "We look forward to working closely with and supporting Excel's customers and partners and we're excited by the prospect of having additional innovative developers working on the 'killer apps' that will drive next generation networks."

The Excel switching platforms complement many of Lucent's existing products, including the recently announced 7R/E Packet Solutions and is expected to become one of the programmable feature servers in that portfolio. The Excel platform can extend and enhance Lucent's 5ESS Switching portfolio and will complement the recently announced softswitch, a Bell Labs-developed software switch for IP networks. The addition of Excel also can help to accelerate Lucent's Full Circle Program, which was launched in June, to make it easier for software and web developers to create broadband services for wireline and wireless networks.

The merger is subject to the approval of Excel's shareholders, the effectiveness of SEC filings, Hart-Scott-Rodino regulatory clearance and other customary conditions.

Founded in 1988, Excel currently employs approximately 460 employees. Since 1996, Excel's revenues and earnings have grown 44 percent and 87 percent, respectively, on a compounded annual basis. The company will become part of Lucent's Switching and Access business unit. Bob Madonna, chairman and chief executive officer of Excel, will assume a key leadership role within Lucent, supporting the company's programmable networking initiatives, which are expected to become a new unit within Lucent. Excel will remain headquartered in Hyannis, Mass.