Nortel to buy PEC

Nortel Networks Corp. is planning to buy PEC Solutions Inc. in a $448 million deal that will create a U.S. operation that the Canadian company will use to pursue government contracts for IT services and security.

Bill Owens, Nortel vice chairman and chief executive officer, said the company has been looking for a U.S. government acquisition since August 2004. The acquisition is expected to close in June.

"This acquisition is going to provide an accelerator for Nortel," he said. The draw is the $60 billion-plus and growing U.S. market for IT services, he said.

Nortel is paying $15.50 a share for PEC, about a 28 percent premium above where the stock has been trading for the past month, Nortel officials said.

The deal will close after regulatory hurdles are cleared. Nortel, which already is doing some U.S. government work, will create a wholly owned subsidiary in the United States to be called Nortel PEC Solutions, which will be a separate legal entity. This will let the company pursue any U.S. government work, including defense and intelligence work.

"We will have full open and direct access to the whole U.S. market," said Chuck Saffell, president of Nortel Federal Solutions.

PEC's founders CEO David Karlgaard, President Paul Rice and Chief Operating Officer Alan Harbitter will remain on board. PEC of Fairfax, Va., was founded in 1985 and works with homeland security, law enforcement, intelligence, defense and civilian agencies. Major contracts include subcontracting role in EDS Corp.'s Navy-Marine Corps Intranet project.

PEC has 1,700 employees and 2004 revenue of $202.7 million. It ranked No. 89 on Washington Technology's 2004 Top 100 list of federal prime contracting revenue.

Nortel has more than 35,000 employees and 2003 revenue of $10.2 billion. The company has not reported its 2004 revenue yet.

Investment bank BB&T Capital Markets/Windsor Group represented Nortel in the deal. JP Morgan represented PEC.