Ascend-Cascade Merger Shakes Up Internet Equipment
Mkt
By Mark Boslet
PALO ALTO, Calif. (Dow Jones)--Ascend Communications Inc. (ASND) and Cascade
Communications Corp. (CSCC) shook up the Internet equipment market by linking their
well-matched product lines in a $3.7 billion merger.
The combination banks on the continued rapid buildout of the Internet infrastructure, which has
been overworked as more people and companies go on-line.
Together, the two companies should establish a stronger place in the market by offering a
high-end, one-stop shopping alternative for Internet service providers.
Cascade, of Westford, Mass., and Ascend, of Alameda, Calif., also will create more powerful
competition for industry leader Cisco Systems Inc. (CSCO). Cisco has supplied the majority of
the Internet's routers, devices that direct its traffic, and has been actively pursuing other areas of
the market.
It could also catch the eye of 3Com Corp. (COMS) and U.S. Robotics Corp. (USRX). 3Com
and U.S. Robotics announced a $6.6 billion merger last month, with the aim of more carefully
targeting the remote-access market, where Ascend is a leader.
The combined company could field what may prove an irresistible package of products for
Internet companies. Analysts say Cascade's high-end ATM, or asynchonous transfer mode,
switch, will combine well with Ascend's high-performance router which it calls its new GRF line,
and its high-capacity MAX TNT remote-access product.
Industry experts called the product combination hard to beat. The three product functions are
critical ones for expanding the Internet infrastructure. Together they allow computer users to sign
on and will direct their traffic to the network's high-speed core.
But the combination also matches fast-growing Ascend with Cascade, which has failed recently
to meet Wall Street's ambitious growth expectations. Cascade announced today that it would not
be able to match analysts' projections for its first quarter.
The company expects revenue of $90 million, compared with $56 million a year ago, and
operating earnings of 14 cents to 15 cents a share. Wall Street was looking for net income of 22
cents a share for the first quarter.
Under the terms of the agreement, announced Sunday evening, Cascade holders will receive 0.7
shares of Ascend for each Cascade share, valuing the deal at $3.7 billion based on Thursday's
closing price of $52 for Ascend shares. Cascade stockholders will received about an $8
premium over Thursday's close of 28 3/8.
The new company will report an unspecified charge in its third quarter after the deal is scheduled
to close.
Also under the agreement, Ascend's Mory Ejabat will become chief executive of the combined
company and Cascade Chief Executive Dan Smith will become executive vice president and
general manager of its switching division.
Cascade's co-founder, Gururaj ''Desh'' Deshpande, will become executive vice president of
strategic planning.
In a press release, the companies said they expect to focus not only on Internet service providers,
but telecommunications companies and the business market. |
