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Danaher Unit to Buy Visual Networks

By Ellen McCarthy
Washington Post Staff Writer
Saturday, December 3, 2005

Danaher Corp., a Washington company that makes tools and other equipment, said yesterday that one of its subsidiaries agreed to buy Visual Networks Inc., a Rockville firm that sells technology that monitors networks and software applications, for about $75 million in cash.

Danaher's subsidiary, Everett, Wash.-based Fluke Electronics Corp., makes tools and software that test electronic systems and networks -- a business complemented by Visual Networks' specialty. The Rockville company has struggled on its own in recent years.

Visual Networks was founded in 1993 and grew rapidly with the telecommunications boom. It held an initial public offering in 1998, and by March 2000, the firm's stock was trading above $83 a share -- compared with the $1.83 a share to be paid by Fluke in the acquisition.

As the telecom bubble burst and the demand for network capacity disappeared, so did the market for technology to monitor those networks.

In May 2000, Visual Networks paid almost $400 million to acquire Avesta Technologies Inc., a New York software firm, but was never fully able to integrate its operations.

Visual Networks soon began cutting costs and reduced its workforce to 130 from 450. Its annual revenue fell to $39.2 million in 2003 from $91.7 million in 1999.

"The traditional value propositions that this company was founded on just aren't valuable any more," said Lawrence S. Barker, Visual Networks' chief executive. "We had to move out of that market or we would cease to be a company."

Last year, Visual Networks launched a line of products that monitor network applications, and while the company has had some success in that market, Barker conceded that it faces fierce competition from big firms like International Business Machines Corp.

"The competitors are a lot different," Barker said. "Our concern is that it doesn't take a major shift in market to potentially really impact the company negatively."

For 2004, Visual Networks posted a $15,000 profit on $52.6 million in revenue.

Officials from Danaher did not return calls for comment on the acquisition. The company, best known as the maker of Craftsman tools, has made more than 40 acquisitions in the past 20 years and got into the electronics testing market in 1998 with the purchase of Fluke Corp.

Richard C. Eastman, an analyst with Robert W. Baird & Co., said the electronics-testing business now represents about 15 percent of Danaher's revenue, which totaled $6.9 billion last year. The company posted a $746 million profit for 2004.

"Fluke has grown with the market pretty rapidly," Eastman said. "And my impression is that for Visual Networks, Danaher would be a good partner because they bring distribution and some investment dollars."

Paul Stone, vice president of marketing for Fluke Networks, the subsidiary of Fluke Electronics that will control Visual Networks, said it was too early to say whether layoffs would result from the acquisition. Barker said he would stay on for a few months after the deal closes, which is expected in the first quarter of next year.

Shares of Danaher rose 7 cents to $56.79.


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