March 31, 1997
Ascend Communications
Agrees to Acquire Cascade
Deal, Valued at About $3.7 Billion,
Is Latest in Consolidation Frenzy
By CHARLES MCCOY
Staff Reporter of THE WALL STREET JOURNAL
Ascend Communications Inc. agreed to acquire Cascade Communications Corp. for stock valued at about $3.7 billion, the latest move in a consolidation frenzy gripping the computer-networking-gear business.
Both companies make various pieces of the plumbing that links computers together in networks. The merger follows other giant deals in that arcane but lucrative field, as networking companies strive to broaden product lines so they can provide one-stop shopping for corporations that are rapidly moving to allow employees to share data through sprawling networks of computers. Another key market is Internet-service providers, which are racing to keep up with the dramatic increase in people surfing the Internet.
Last month, 3Com Corp., responding to similar pressures, bought U.S. Robotics Corp. for more than $6 billion. All networking-gear companies are to some degree chasing Cisco Systems Inc., the dominant networking company whose own $4 billion acquisition of Stratacom Corp. last year kindled the consolidation binge.
Terms Are Listed
Under terms of the deal, Ascend will swap 0.70 share of its stock for each Cascade share. The shares of both companies are traded on the Nasdaq Stock Market. On Thursday, Ascend closed at $52 a share; Cascade, based in Westford, Mass., closed at $28.375. Based on those prices, Ascend's offer has an indicated value of $36.40 a share, a 28% premium over Cascade's latest stock price.
The combination has many synergies. Ascend is a leader in remote-access servers, which allow more people to call in and connect to networks or the Internet. Ascend is regarded as having an edge over even Cisco in that area, which is particularly important to Internet-access providers. Cascade specializes in advanced switching technologies known as ATM and frame relay. Ascend also has begun producing routers, another key piece of network gear that helps shunt information around a computer network.
Between them, the combined companies would offer all three of the major technologies that Internet-service providers require: Fast switching technology, high-capacity servers and powerful routers.
Buying Opportunity Seen
It's also a good time to buy, in some ways. Networking-company stocks have been hammered lately because of investor concern about PC and corporate networking growth. Cascade's stock has plummeted 57% since late January. Ascend's stock also has been hurt, though not as severely; it has dropped about 35% during the same period.
Most analysts believe the long-term growth prospects of the networking companies are strong, and say the recent stock declines reflect investor jitters and the market's short-term mentality.
As the Internet expands and corporations continue to attempt to link employees, suppliers and customers in vast computer networks, demand for networking gear is expected to grow strongly. However, the networking business is fiercely competitive and is full of start-ups and small concerns with path-breaking technology. That is likely to keep pressure on companies to either buy up technology they don't have to broaden product lines, or be bought by bigger concerns.
The competitive pressure has taken a toll on Cascade lately. It announced Sunday that it expects lower-than-expected results for the first quarter, despite an expected 61% jump in revenue to $90 million from $56 million.
After the acquisition, Ascend's chief executive officer, Mory Ejabat, will remain chief executive and president of the combined companies. Dan Smith, president and CEO of Cascade, will become an Ascend executive vice president and will head its major switching-products group, which will include most of the products Ascend is acquiring from Cascade in the transaction |
