Lucent Technologies Ascending to New Heights:
Reason for Report: Merger with Ascend Completed
June 25, 1999
Merrill Lynch & Co.
Michael E. Ching, Timothy P. Long
Highlights:
· As expected, Ascend's shareholders approved the company's merger with Lucent today.As a result, each outstanding share of Ascend common stock will be converted into 1.65 shares of Lucent, valuing the merger at approximately $24 billion.
· Lucent continues to emphasize its ability to provide end-to-end networking solutions as a key competitive advantage. Accordingly, the
company announced the creation of a broadband networks group that includes both Ascends' internetworking products, and Lucent's optical and communications software groups. The synergies between these divisions are expected to generate greater revenue growth.
· Since this merger was originally announced, the level of interest in next generation broadband networks has accelerated. With this successful acquisition, Lucent appears well positioned to emerge as a leading supplier in this area. In fact, we expect a couple of
contract awards to be announced over the next several weeks.
· Combined with some administrative savings, management continues to believe that this merger will add $0.03-0.05 in EPS in fiscal 2000. Our current fiscal 2000 EPS estimate of $1.55 already reflects this.
· The biggest issue will be Lucent's ability to retain key sales and development personnel. At this time, we believe the turnover rate has
been normal.
· With growing demand for next generation networks, and a successful acquisition in this area under its belt, we believe that Lucent
stock should trade at 2-1/2 times its growth rate, or 45-times our calendar 2000 EPS estimate of $1.62. |
