Takeover speculation buoys Newbridge stock
by Simon Tuck - Wednesday, November 10, 1999
globe and mail
Ottawa -- Newbridge Networks Corp. shares jumped more than 6 per cent yesterday as Alcatel SA of France prepared to take a run at buying the beleaguered
communications equipment maker -- and there was speculation that up to three other telecommunications giants could be considering bids.
The Globe and Mail reported yesterday that Alcatel is stalking Newbridge, based in Kanata, Ont., and is considering a takeover bid.
Analysts said they also believe as many as three other telecommunications powerhouses are considering joining the hunt to bag Newbridge, as the global telecommunications
industry continues to bring together its voice and data flanks.
Newbridge shares rose sharply for the second consecutive day, jumping $1.50 or 6.1 per cent to $25.90 on the Toronto Stock Exchange. That means the stock has climbed
$2.98 or 13 per cent in two days since word of Alcatel's interest became public.
Robert MacLellan, a technology analyst at Canada Trust Securities Inc. in Toronto, said Newbridge's recent price plunge almost certainly would lure "bottom feeders" to take
a good look. "I would be nothing short of shocked if there weren't three, maybe four, companies kicking the tires or exploring the possibility of taking a run [at Newbridge]."
Newbridge, which specializes in designing and manufacturing high-speed telecommunications switches, is seen as a potential partner for any of the remaining four or five
voice equipment giants that haven't yet covered their data wing. In addition to Alcatel, likely suitors include Sweden's L.M. Ericsson Telephone Co. Inc., Marconi PLC of
Britain, Lisle, Ill.-based Tellabs Inc., Nokia SA of Finland and Newbridge's most important partner, Siemens AG of Munich.
Michael Urlocker, a technology analyst at Scotia Capital Markets in Toronto, said there's no shortage of prospective buyers. "The key is whether there's a prospective seller
and only [Newbridge chairman and chief executive officer] Terry Matthews and the board know the answer to that one."
Mr. Matthews, also Newbridge's founder, owns 22 per cent of the company and could block any friendly takeover bid. Unfriendly takeover attempts are rare in the
technology industry because they tend to drive the target company's key assets -- its highly skilled workers -- out the door.
Newbridge spokesman John Lawlor said the company doesn't comment on takeover speculation. Niall Hickey, a spokesman for Alcatel, said the same thing. "We get our
name linked to many companies in many parts of the world."
The pressure to sell Newbridge, which has been the subject of frequent speculation for more than two years, received a fresh jolt of energy last week when the company
issued its latest warning of disappointing quarterly results. That prompted a slide in the share price, including a fall of $6.80 or 23 per cent to $23.10 on Nov. 2, the day after
the second-quarter warning.
That pressure to sell increased further yesterday as rival Nortel Networks Corp. announced that it would slash prices on a line of key products that at least one analyst says
could affect demand for Newbridge's flagship technology. Nortel said it is leading the move to "low-cost, new-world routing and IP [Internet protocol] software."
"It's all bad news [for Newbridge]," said Richard Woo, a technology analyst at Thomson Kernaghan & Co. Ltd. in Montreal.
Although Newbridge and some other analysts disputed Mr. Woo's assessment, demand for Newbridge's flagship asynchronous transfer mode [ATM] technology is expected
to feel increasing pressure beginning in a year or so as newer technologies such as optical switching and Internet protocol make further inroads.
Mr. Woo said the limited window for ATM's growth makes Newbridge more valuable to potential suitors in the short term than in the long term. "The musical chairs is
running out of game time." |
