Nortel has offered $15.50 for each share in the Fairfax, Virginia-based company, which represents a hefty premium of 37% on its closing price on Monday of $11.31. Its shares immediately leapt to $15.31 in early trading Tuesday. Both boards have approved the deal, and PEC shareholders with a total of 53% of the company’s stock have agreed to the transaction.

This is the Brampton, Ontario-based company’s first major acquisition since the dot-com and telecom boom years, when it spent $9bn on internet equipment vendor Bay Networks in 1998, $3.2bn on optical networking company Qtera in 1999, $2.1bn on CRM vendor Clarify in 2000, $7.8bn on web switch maker Alteon Websystems in 2000, and $2.5bn on a subsidiary of optical networking maker JDS Uniphase in 2001.

The deal also marks a return to respectability for the vendor, after a protracted period which has seen it slash jobs, restate company earnings, and fire CEO Frank Dunn and several other senior executives. It is slowly getting its accounts in order. In March 2005, Nortel finally posted third-quarter results for 2004, more than five months late, but it still faces class action suits, as well as regulatory and criminal investigations into its accounts.

Telecom and networking equipment makers are increasingly looking to the services space to prop up margins and deliver the long-term reliable revenue stream that contracts in the sector bring. Nortel will integrate PEC with its Nortel Federal Network Solutions unit to form Nortel PEC Solutions, which will be headquartered in Fairfax, Virginia. It said the deal will help it compete more effectively in the government market, and it aims to combine PEC’s professional services with its own technology expertise to deliver converged network services.

Bill Owens said: [The transaction will] aggressively position Nortel in the US federal government IT market. This market is characterized by consistent and steady growth and presents a significant opportunity for Nortel, based on expected demand for our specific technology and services capabilities in this market. Nortel claims the deal will be neutral to earnings this year, becoming accretive thereafter.

PEC has about 1,700 employees, 270 of whom it acquired when it purchased Integrated Information Technology, a provider of satellite communications engineering and IT services, for $33m in June 2004. The company was formed in 1985, has 30 offices in the US, serving many different US government departments. Last September it won a contract with The Administrative Office of the US Courts worth up to $93m, to provide software design, development and integration, independent testing, quality assurance, operations and maintenance, and local area network and computer support. In June 2003, it won a $60m deal to provide the Department of Homeland Security with financial and budget analysis, acquisition support, and technical and schedule management.