GEC agreed to pay Kohlberg Kravis Roberts & Co, a private investment firm that owns 81.5 pecent of Reltec, and other investors $29.50 (pounds 18.34) a share in cash. That's a 36 per cent premium to Reltec's closing price on Friday, though just 50c more than its initial public offering price of $29 a share a year ago. London-based GEC also will assume $361m of Reltec debt.
The agreement comes just six weeks after GEC said it would sell its defence- electronics business to British Aerospace for pounds 7.8bn. GEC expect Reltec, which makes devices that help phone networks carry more calls, to give it a foothold in the lucrative North American market.
"Reltec has great distribution with the largest phone companies." said Gregory Geiling, an analyst at JP Morgan Securities, who has a "buy" rating on Reltec stock.
Chief executive George Simpson said GEC will draw on cash reserves to pay for the purchase and still has "plenty" of cash left to pay for other acquisitions.
The sale is a win for KKR, the largest leveraged-buyout firm, which paid $475m for its stake in Reltec in 1995. That stake is now worth $1.71bn. Other investors aren't so lucky.
Reltec went public at $29 a share a year ago, and rose as high as $49.125. Investors were enthusiastic about the company, whose products, called digital loop carriers, funnel traffic on local networks from customers to larger pipes that connect to the internet and other networks. Telephone companies use the products to help handle mushrooming internet and data traffic.
Still, not all investors were so smitten. Reltec competes against Northern Telecom, Lucent Technologies and others in a market that's very price competitive.Reuse content