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Southland Investment Firms to Buy Enterasys

The two companies will pay $386 million for the maker of computer security products. Its shares rise almost 25%.

November 15, 2005|From Times Staff and Wire Reports

Enterasys Networks Inc., a maker of computer security products and network equipment, said Monday that it agreed to be bought out by two Southern California investment firms for $386 million.

Shares of Andover, Mass.-based Enterasys surged nearly 25% on news of the company's acquisition by Gores Group of Los Angeles and Tennenbaum Capital Partners of Santa Monica, which plan to take the company private.

Enterasys' board has approved an agreement granting shareholders $13.92 in cash for each share of Enterasys' common stock, a premium of 32% on the stock's closing price Friday.

The deal, subject to shareholder and regulatory approval, was announced early Monday and is expected to be completed in the first quarter of 2006.

Shares of Enterasys rose $2.61 to $13.18.

Enterasys makes computer security products, as well as routers and switches for wireless networks.

Enterasys is a successor company to Cabletron Systems Inc., co-founded in 1983 by former New Hampshire Gov. Craig Benson.

Nine former Enterasys executives have been charged in an alleged scheme to inflate revenue to shore up its stock price. Several of them, including former Chief Executive Enrique Fiallo, have pleaded guilty.

In 2003, Enterasys agreed to a $50-million settlement with investors over the accounting scheme.

Enterasys on Oct. 26 reported $72.9 million in profit for the July-September period, including a $73-million gain from a tax refund. In the second quarter, Enterasys lost $23.6 million, including $16.6 million in restructuring costs and other expenses.

Enterasys' senior managers will continue to lead the company under the new owners, with the headquarters remaining in Andover.

Gores, founded in 1987 by Chairman Alec E. Gores, has stakes in 30 companies and about $1 billion under management.

Tennenbaum, founded in 1996 by senior partner Michael E. Tennenbaum, has more than $3.7 billion under management. Two of its high-profile investments have been in the airline industry.

The two firms' deep pockets can help Enterasys make acquisitions in the highly competitive networking industry, which Cisco Systems Inc. dominates.

"There's one big player in Cisco, but we see a future of consolidation in the space," said Gores, whose firm would be the majority shareholder in Enterasys once the deal is approved.

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