The last vestige of the company that made former Gov. Craig Benson and his partner, Robert Levine, poster boys for the garage-style innovation that marked the early years of the dot.com revolution has been sold.
Enterasys Networks, the only remaining independent offshoot of Cabletron Systems, was acquired by Extreme Networks of San Jose, Calif., in a $180 million cash transaction announced on Friday and expected to close early in the fourth quarter.
Enterasys, one of four companies spun off from Cabletron in 2001, employs about 900, with its international headquarters in Salem, research and development offices in Toronto and sales offices in Ireland.
Extreme Networks, with 750 employees and annual revenue just over $300 million, will more than double in size through the acquisition of Enterasys, which reported $330 million in revenue for its fiscal year ending on Sept. 30.
Both companies specialize in the switching technology that links computers in local area networks. In a conference call with reporters and analysts on Friday, Chuck Berger, president and CEO of Extreme Networks, said the acquisition will create the fourth largest company in the network switching market, behind Cisco, Hewlett-Packard and Juniper Networks.
"The combination brings together two leaders and longtime players in the ethernet networking space," he said. "This transaction will help us deliver on our vision of technology innovation with more scale than possible for either company alone."
Berger said that while the companies share the same market focus, they have complementary areas of expertise. Enterasys has had success in the wireless arena, education markets and government contracts. The company provides WiFi services for the New England Patriots and recently acquired a similar contract for the Philadelphia Eagles.
Enterasys also brings stronger marketing to the combined operation. "We were lacking the infrastructure for effective demand and lead generation," Berger said. "Enterasys has a fully evolved and effective infrastructure that will be extended to include Extreme Networks' customers and prospects. It would take us years and significant expense to get to this level of sophistication and effectiveness."
Economies of scale
In the conference, company officials said economies of scale should reduce product costs and operating expense by $30 million to $40 million once the two operations are fully merged.
In a later interview, Berger said most of the savings would come from operating efficiencies, not layoffs.
"First and foremost, we are combining with Enterasys to combine with a great team of people. We have no plans whatsoever to relocate or substantially reduce the size of any of the Enterasys teams," he said.
"Against a combined head-count of nearly 2,000 employees," he said only a small number of people would be let go. "I can't give a specific number at this point, but it will be across all locations and both companies, and the impact on any one office will be small."
Berger said Enterasys employees, who have worked for a privately held company, will now be part of a publicly traded company, and will be eligible for stock purchase options as part of their benefit package.
"When we do well, they will benefit," he said. "If people across the company are affected negatively, we've got money set aside for generous severance to make sure we bridge them to their next opportunity."
Enterasys President and CEO Chris Crowell, who has led the company for the past six years, will stay on as a senior executive in the combined organization. "I'm excited to be part of the executive team going forward, and the rest of the Enterasys team is equally excited," he said.
Extreme Networks was founded in 1996 by a group of venture capital partners. Cabletron, founded in 1983 in a Massachusetts garage by Benson and Levine, was at its peak in 1996, when the Rochester-based company employed 6,600 with more than $1 billion in revenue.
Cabletron reorganized as a holding company with four subsidiaries in 2000, one of which was Enterasys. The other three were eventually sold or shut down.
Berger said the Enterasys name would continue for the time being as a product line under the Extreme Networks umbrella.
"It's likely that Extreme will be the surviving brand," he said, "but that will evolve over quite a long period of time. The Enterasys sign will be on the Salem building for quite a while."
Once that sign is removed, the legacy of Cabletron may continue, but the company will be history.
"Today marks the end of Enterasys, and so the once great Cabletron," said Zeus Kerravala, principle analyst and president of ZK Research. "I remember in a previous life, I was a network engineer and our network was built primarily out of Cisco and Cabletron gear. Cabletron was as credible at networking as anyone, and people would argue they were better than Cisco."
Cisco eventually far outstripped Cabletron, and now with Hewlett-Packard controls 80 percent of the networking market, leaving companies like Extreme Networks and Enterasys fighting over the remaining 20 percent, he said.
"Cisco found adjacent markets to move into that added value to its overall network," Kerravala said, "while Cabletron tried to rely too much on core networking. That was the failure of a lot of great companies back then."email@example.com