Purchases make Newbridge a
key Internet player
$350-million in deals: TimeStep and
Northchurch form core of new strategy
Jill Vardy
Financial Post
OTTAWA - Newbridge Networks Corp. unveiled long-awaited
plans yesterday for grabbing a share of the burgeoning Internet
equipment market with the $350-million purchase of two
companies.
Newbridge will buy the shares it doesn't already own in TimeStep
Corp. and Northchurch Communications Inc., which both develop
products and services for the Internet protocol (IP) market.
Newbridge, which already owns a one-third stake in both firms, will
pay the $350-million over the next two years.
The acquisitions form the core of Newbridge's strategy to sell
equipment to run data traffic over IP networks. That strategy is
crucial because IP is one of the fastest-growing segments of the
telecommunications sector.
Some of Newbridge's major competitors have already completed
IP sales plans and product lines. However, not many of them got
the sweet deal that Newbridge has negotiated for these companies.
Alcatel, for example, recently bought TimeStep competitor Internet
Devices for $305-million (US). And Lucent Technologies Inc.
purchased Xedia, another competitor of TimeStep, for $246-million
(US).
Meanwhile, a competitor of Northchurch's, a small company named
RedStone, was recently acquired by Siemens AG for at least
$350-million (US). "So no matter how you slice the numbers, it
looks like Newbridge has got a real bargain," said Ron Westfall, an
analyst at Current Analysis in Stirling, Va.
Michael Howard, a technology analyst at Infonetics Research Inc. in
San Jose, Calif., said he was worried about Newbridge's late entry
into the IP marketplace. These deals "put the company squarely in
the IP game," he said.
However, Newbridge officials argue they have been in the game all
along. The company has more than 200 staff working full-time on IP
products. Terry Matthews, Newbridge's chairman and CEO, said
Newbridge has invested over the past three years in affiliate
companies where IP products have now come to fruition. "So we're
in quite an upswing in IP," he said in a recent interview.
Northchurch, based in Boston, has designed a router for high-speed
access of IP networks. "It's one of a wide variety of products
designed for the next generation applications on the Internet and for
highly reliable public network IP services," Mr. Matthews said.
Kanata-based TimeStep makes software that secures
telecommunications networks, making sure confidential messages
get sent across the Internet unseen and intact. The company's
Permit technology allows corporations to send sensitive data across
the Internet instead of leasing expensive private lines.
TimeStep was in the middle of what its underwriter calls a hot round
of financing last March when it got an unsolicited takeover offer.
That offer, admits Alan Lutz, the president of Newbridge, was from
his firm.
Mr. Lutz said the acquisitions significantly expand Newbridge's
marketplace. "We have an established position with incumbent
carriers. This takes us strongly into the Internet service provider
market," he said. "We think being able to offer the services that
these ISPs can make money with will be a winning sales strategy."
Industry analysts who were briefed on the deals said they are just
the thing needed to get Newbridge solidly into the IP game.
"This acquisition positions Newbridge as a true market leader," said
Matthew Kovar, technology analyst at Yankee Group in Boston.
"Newbridge will gain access to carriers and managed network
services ... where it previously did not have an offering, opening it
up to a market that will exceed $2-billion (US) by the year 2002. |
