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The sharp fall in the stock price of Lucent Technologies Inc. may prompt a top Israeli venture capital firm to consider legal action to recoup losses from the sale of Chromatis Networks Inc. to Lucent for $4.5 billion last year. Jerusalem Venture Partners is considering taking legal action against Murray Hill, N.J.-based Lucent for alleged bad faith and misrepresentation in the acquisition of Chromatis, a developer of optical telecommunications networks, according to a source close to the Jerusalem-based venture capital fund. “JVP is discussing its legal options with a law firm in the U.S. and in Israel,” the source said. Lucent acquired Chromatis in June in a $4.5 billion all-share deal — at the time the largest acquisition ever in Israel. JVP was the largest single shareholder in the Petah Tikva, Israel-based Chromatis, with a 15.5 percent stake, which the firm swapped for shares in Lucent. Israeli financial sources said that JVP preferred the Lucent bid over those of other bidders based on the presentation of its financial strength. By the time the Jerusalem-based venture capital fund took possession of the Lucent shares, however, the stock had fallen sharply. A source familiar with the deal added that, due to a disagreement with Israeli income tax authorities over the distribution of the shares, the limited partners received their shares in mid-February. By that point the share price had fallen to $13, a 77 percent drop in the value of the deal from the date it was signed. The source said that a decision on whether any legal action will be taken is expected within the next few weeks. Israeli financial sources said that JVP may seek to claim that Chromatis shareholders agreed to sell the company to Lucent on the basis of its financial standing. The sources also noted that two senior Lucent executives who were closely involved in the Chromatis negotiations sold their holdings in the company immediately following the deal. JVP would not comment on whether it was considering legal action against Lucent. Lucent officials could not be reached for comment. JVP invested $10 million in Chromatis and the current value of its holdings in Lucent is $166 million. When the deal was signed in June, JVP stood to receive $697 million worth of Lucent stock in exchange for its stake in Chromatis. Copyright (c)2001 TDD, LLC. All rights reserved.

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