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Motorola Inc. on Wednesday agreed to acquire Blue Wave Systems Inc., a maker of digital signal processors, which are used by telecom-equipment manufacturers to develop voice-over packet gateways and wireless applications. The all-stock deal is worth about $135 million.
Motorola will exchange about 6.5 million shares of common stock for the fully diluted common shares of Blue Wave. The agreement allows Blue Wave to exit the agreement if Motorola's share price drops below $20.77 during the 90- to 120-day regulatory period before the deal closes. In that case, Motorola could issue additional shares to increase the transaction value to $135 million. The boards of both companies have approved the transaction.
Motorola's goal is to integrate Blue Wave's DSP subsystems and software into its computing equipment, which would help its telecom-equipment manufacturing customers enhance the functionality of their networks and to do it with greater speed.
"Customers spend a fair amount of time resolving integration issues and doing product testing to be confident about a product," says Pete Rendek, director of market development for Motorola's computer group. The integration and testing that Blue Wave and Motorola will do jointly "removes the engineering and development obstacle for customers," Rendek says.
By acquiring Blue Wave's technology and expertise, Motorola could expand its product offering, make it more robust, and give its customers the ability to shorten development time, says Paul Zorfass, a senior analyst with International Data Corp.
Zorfass says Motorola will face competition from other companies in the market who are doing pre-integration work for their customers. Motorola's computer group, however isn't as worried about losing business to those companies as it is about losing business to its own customers. Lucent Technologies and Nortel Networks are customers of Motorola's computer group, but they are also among its biggest competitors, Rendek says, because those customers have the ability to do the integration and product testing themselves.
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