Alcatel's Mkt Access, Portfolio Stronger With Newbridge
By VALERIE VENCK
Dow Jones Newswires -- February 23, 2000
PARIS -- Alcatel SA's (ALA) $7.1 billion buy of Canadian telecommunications equipment supplier Newbridge Networks Corp. (NN) will strengthen the French group's access to the North American market, as well as its product portfolio, analysts said Wednesday.
Newbridge has a strong presence in the asynchronous transfer mode - or ATM - market, a new area for Alcatel. So far, Alcatel has invested in Internet protocol rather than ATM to provide data carrying services.
However, the French group says that both technologies have a strong growth potential, and analysts seem to agree.
"The acquisition (is) strategically very positive for the group (Alcatel)," Antoine Joly, telecommunications analyst at French broking house Aurel-Leven said.
Joly says Newbridge's integration into Alcatel will go smoothly, because the French group has had previous successful experiences after buying North American companies, such as U.S.-based Xylan.
Analysts said Wednesday that Newbridge was a good opportunity and that Alcatel paid a fair price.
Despite the market's enthusiasm for the deal, Alcatel's Paris-listed shares were down 3.5% or EUR8.20 at EUR229.30 around 1259 GMT, after rising as much as 5.1% to EUR249.50 in early trading.
The decline is due to arbitrage traders revaluing the group's share price based on the agreed swap of 0.81 Alcatel American Depositary Share for every one Newbridge share.
Tuesday, Alcatel ADS closed 1.6% higher in New York at $48.125, while Newbridge shares rose 5% to $34.375.
In the short term, Alcatel shares in Paris are likely to remain flat or even fall slightly, but the medium-to-long term prospects for the stock are positive, one analyst said.
Meanwhile, the market doesn't seem to worry about Newbridge's poor results over the past two years, and is confident that Alcatel will be able to turn Newbridge's weaknesses into strengths.
"Newbridge has been suffering because it didn't have the necessary critical mass" to grow, Aurel-Leven's Joly said.
This is seen as particularly true for the fast expanding digital synchronous line and local multipoint distribution service markets, which both allow high-speed Internet access.
However, this is no longer relevant since the French group said Wednesday that the deal positions Alcatel among the world's top three players in new generation data networks, while boosting the group's growth in revenues and earnings per share.
By Valerie Venck; 33 (0)1 40 17 17 40
-valerie.venck@dowjones.com
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