Tekelec (Nasdaq: TKLC) has reached an $85 million deal to acquire Richardson, TX-based Taqua, a privately held provider of next-generation Class 5 packet switching systems.

Class 5 switches are the “monsters” of telephony and network backbones, capable of handling 10,000 or more lines. According to Telephony Magazine, the average share of lines for a Class 5 in current networks is 36,000.

A recent study showed than network carriers are in the process of replacing more than 20,000 Class 5 switches, especially with networks moving toward VoIP.

Tekelec says it is purchasing all of Taqua’s outstanding stock in cash, plus the assumption of outstanding options. The purchase is expected to close within 60 days, after which Taqua will become part of Tekelec’s next-generation switching business.

“The acquisition of Taqua places Tekelec at the heart of legacy small Class 5 switch migration within the North American independent operating companies and competitive carrier markets,” said Fred Lax, president and CEO of Tekelec. “–Upon completion of the acquisition, Tekelec will have more than 110 next-generation voice switching customers, carrying traffic in Class 4, Class 5, and wireless applications globally, making Tekelec one of the largest suppliers of next-generation switching equipment in the world.”

Taqua, which makes circuit and IP voice switching products, was founded in 1998 and has since raised more than $140 million in funding. Company officials say the merger with Tekelec, which is based in Calabasas, CA, but has 500 employs in RTP, will strengthen its brand.

“–While we have experienced strong growth during the past two years, we expect even stronger market penetration in 2004 and beyond as we leverage Tekelec’s operational expertise, global reach, and reputation for carrier-grade reliability,” stated Taqua President and CEO Charlie Vogt. “With the addition of Taqua, Tekelec’s customers will benefit from a switching business with an even broader choice of circuit-to-packet solutions and the financial strength of a leading, publicly traded telecommunications company.”

Once the acquisition of Taqua closes, Tekelec expects the transaction to reduce its earnings per share anywhere from 7 cents to 9 cents off its 2004 earnings. For 2005, the company said it expects the deal will reduce EPS by 4 cents to 6 cents.

Shares of TKLC closed up half a percent, or about 10 cents, to $19.34 on Thursday. The upward trend continued in after-hours trading, with the stock was priced at $19.40.

Tekelec: www.tekelec.com