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Fore Systems sold

Backers of a locally grown high-tech company harvest a financial jackpot

Tuesday, April 27, 1999

By Michael Newman, Post-Gazette Staff Writer

Ending months of speculation and its existence as an independent public company, Fore Systems yesterday agreed to be bought for $4.5 billion.

  Eric Cooper, co-founder and chairman of Fore Systems Inc., stands in front of the company's headquarters in Warrendale. (Robert Pavuchak, Post-Gazette)

London-based General Electric Co. -- known as GEC, it is unrelated to Connecticut-based General Electric Co. -- will pay $35 per share for the Warrendale networking firm, one of the region's most prominent technology companies and among the first high-tech firms here to offer shares to the public.

The price, to be paid in cash, represents a 43 percent premium over Fore's Friday closing price of $24.50. The company went public in May 1994 at $16 a share -- or, adjusting for two splits, $4 a share.

"I'm proud of what we've done," said Robert Sansom, who founded the company nine years ago with three colleagues from Carnegie Mellon University's school of computer science. "Fore's existence as a public company is ending on a positive note."

Analysts and investors agreed. The stock rose $9.25 yesterday, or 38 percent, to $33.75, while analysts praised the transaction. They considered it unlikely that other bidders would try to top GEC's offer.

"It's a great deal," said Andy Schopick of Nutmeg Securities in Connecticut. Given the company's revenues, he said, "it's unlikely Fore's stock would have approached these kinds of levels any time in the near-term future."

Fore President and Chief Executive Officer Thomas Gill, who will continue in his current position, said the company will continue to have its headquarters here. The deal endangers no jobs, he said, and the company will proceed as scheduled with the expansion of its new offices, which are not yet 2 years old.

Gill announced the purchase at a companywide meeting yesterday morning. Close to 1,000 employees crowded into the corporate cafeteria, and the proceedings were transmitted (via Fore's own networking equipment) to scores of other employees at offices around the world.

"I was pleased for our employees," said Gill, whose remarks were interrupted several times by ovations. "Our employees are really the company -- they're the ones who created the value." Fore awards employees stock options as compensation, and most can be expected to profit from the takeover.

  More on Fore Systems:

Fore's fast growth


Fore's value has been the topic of speculation for months, if not years, as the networking industry has rapidly grown and consolidated. As large companies such as Cisco Systems and Lucent Technologies snapped up smaller rivals, investors and analysts alike wondered whether Fore would be next.

In GEC, Fore has an owner that was not often mentioned as a suitor. Large foreign telecommunications firms such as Sweden's Ericsson and France's Alcatel were thought to be likely buyers, as was Lucent, until it purchased one of Fore's rivals, Ascend Communications, for $12 billion in January.

GEC is one of Britain's biggest technology and engineering firms, with revenues last year of $18 billion. But lately it has been divesting some of its more traditional businesses and making a push into the telecommunications industry, especially in the United States.

In January, it agreed to sell its defense-related electronics business to British Aerospace for almost $12 billion. Less than three weeks ago, it completed its purchase of Reltec, a Cleveland telecommunications firm, for $2.1 billion.

Fore is the latest in a wave of U.S. companies to be taken over by British firms.

Led by British takeovers, European companies spent $280 billion last year snapping up U.S. concerns, almost six times the $48.4 billion spent in 1997, according to researcher Securities Data Co.

Among local concerns, Pittsburgh software maker Carnegie Group, Latrobe plastic injection molding company Carerra Corp., and Monroeville-based Westinghouse Electric's nuclear- energy operations have all fallen into British hands in recent months. Nationally, British Petroleum bought Amoco for $53 billion, while Britain's Vodafone Group PLC, a wireless company, agreed to buy AirTouch Communications for $55 billion.

Analysts say the deals are being driven by simple needs. Europe is sputtering, while the U.S. economy keeps humming along at double and triple the pace of growth in the United Kingdom, Germany and France.

Fore, which will operate as a wholly owned subsidiary of GEC, will work with Marconi Communications, another GEC subsidiary. Marconi is the result of a recent combination of GPT, a British maker of telecommunications equipment, and Marconi SpA, an Italian maker of radio and communications devices founded by Guglielmo Marconi, inventor of the radio.

"This is a new direction for the company," Gill said. "They desire to continue to build out their telecom business."

Disruptions to Fore's business will be minimal, Gill said, since GEC will be relying on Fore and Marconi to develop its business. More established networking firms might have been tempted to fit Fore's products and strategy into their own existing plans.

Fore's relationships with its customers will not change, nor will its relationships with its employees, Gill said. The senior management has signed employment agreements with GEC. Gill will report directly to George Simpson, GEC's CEO.

Moreover, Fore will keep its name, an acronym of its four founders' first names, as well as its "Networks of Steel" marketing campaign, which highlights the company's Pittsburgh heritage. "There's a lot of value in that," Gill said.

Fore's strengths are its technology, known as asynchronous transfer mode, or ATM, and its customer base.

ATM technology enables voice, video and data to be transmitted over computer networks quickly and clearly. Fore's customers include commercial firms such as Boeing, Ford and Rockwell; several government agencies; and some 20 telecommunications companies such as AT&T and Bell Atlantic.

Marconi, meanwhile, makes more traditional switching equipment, telephone cables, fiber-optic lines and even public telephones. Its clients include British Telecom and telephone companies in China and Australia.

"We are positioned extremely well from the business side out into the market," Gill said. "GEC is positioned well with the large carriers."

Together, he said, "we're converging on the sweet spot of the growth sector of the market."

Growth has been something of a tradition at Fore, at least in revenue. For its first few years, triple-digit revenue growth was normal, though the pace has slowed to the high double digits more recently.

Its stock history has been somewhat more turbulent. In its five-year public history, Fore's stock price, adjusted for two splits, has fluctuated from less than $10 to more than $44. Before its second split, shares traded as high as $88.

Its earnings record was also uneven, as the company sometimes failed to meet analysts' predictions -- or its own targets -- for quarterly earnings.

The company also struggled to digest its many acquisitions: In its five years as a public company, Fore bought no fewer than six companies.

In January, federal regulators asked for more information about Fore's $250 million, fall purchase of Berkeley Networks. The company accounted for the purchase in such a way that it wrote off almost the entire price, a common practice in the technology industry that has lately come under federal scrutiny.

The results of that investigation have not yet been announced.

Despite yesterday's news, nostalgia was in surprisingly short supply at Fore, which began with a few Carnegie Mellon researchers working on their computers above a hair salon in Oakland. It now has 2,000-plus employees and its own $44 million corporate campus in Warrendale, complete with health club and free soda fountain.

"We've built up a lot of value in the company," said Sansom, who will continue as Fore's chief technology officer. He ascribed most of company's success to its employees, characteristically downplaying his own contribution not only to its growth but also to its name.

"Yes, the Fore name will continue," he said. "and I think that's good."

Post-Gazette staff writer Steve Massey contributed to this report.

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