FOCUS-Buyout talk keeps pumping up Newbridge stock
Reuters, Friday, November 12, 1999 at 19:11
(Recasts, adds Newbridge and analysts' comments. All
figures in U.S. dollars unless noted)
By Lydia Zajc
TORONTO, Nov 12 (Reuters) - Takeover talk continued to pump
up the stock of Newbridge Networks Corp. (TSE:NNC) (NYSE:NN) on
Friday as prospective buyers mulled over the value of the
struggling Canadian computer networking company, analysts said.
Shares of Newbridge, toiling to recover from six profit
warnings in the past 10 quarters, soared C$4.60 -- a whopping
17.1 percent -- to close the day at C$31.40 on the Toronto
Stock Exchange on volume of 4.5 million shares.
In New York the company's stock rose 3 to 21-1/4.
"I think that a number of parties are interested," said Rob
MacLellan, analyst at CT Securities. "But we're a long step
away from an offer being offered and accepted."
The company has also said it is not in takeover talks with
French telecoms equipment maker Alcatel Alsthom (SBF:CGEP),
another name in recent news, although it has been exploring
alliance possibilities, MacLellan added.
The Toronto Globe and Mail newspaper, citing sources close
to the company, reported on Friday that Swedish telecoms group
Telefonaktiebolaget LM Ericsson (SWED:LME.B) was conducting due
diligence on Newbridge ahead of a possible bid for the maker of
asynchronous transfer mode switches -- equipment that sends
multimedia data zipping across networks at high speeds.
Newbridge spokesman John Lawlor told Reuters that the
company, based near Ottawa, had chatted with Ericsson
periodically over the past year about business opportunities,
but not about a buyout.
"We're not in talks with Ericsson about a possible
takeover," Lawlor said.
Nor is Newbridge in takeover talks with French telecoms
equipment maker Alcatel Alsthom (SBF:CGEP), another name
mentioned recently, although they have been exploring original
equipment making alliances, Lawlor added. "We are not in talks
with any party regarding a possible takeover of Newbridge," he
said.
Asked whether Newbridge would ever consider putting itself
on the auction block, Lawlor said: "Everything has a price."
"One can never say never," he added.
Ericsson, the world's largest maker of mobile
communications systems, said it would not comment on media
reports that it would buy Newbridge.
"We can't comment on individual speculation," Ericsson
spokesman Lars Ostlund told Reuters. "What we've said all along
is that we have an acquisition strategy of small- to
medium-size companies," he said.
Over the past few weeks companies mentioned as possible
purchasers have included Ericsson, Alcatel, British systems
group Marconi Plc (ISEL:GEC), Illinois-based telecommunications
equipment maker Tellabs Inc. (NASDAQ:TLAB), Japan's Fujitsu Ltd.
(TOKYO:6702) and long-time Newbridge ally Siemens AG <SIEGn.DE>
from Germany.
Volume in Newbridge options traded in Chicago exploded on
Friday.
Rumors that Newbridge will be bought are not new, but have
gathered steam recently as its stock recovers from a 12-month
low of C$20.60.
Friday was no different, said analyst Paul Sagawa at
Sanford Bernstein in New York. "From a logical perspective,
Ericsson, Alcatel, Siemens would have most reason to want it,"
Sagawa said.
MacLellan agreed, pointing out that the three are lagging
in North American penetration in Newbridge's market, and
Siemens already has an advantage through its manufacturing and
sales alliances with the company.
Sagawa said the company has problems but that its
asynchronous transfer mode technology is still critical at this
time.
Newbridge founder and head Terry Matthews, who holds a
significant stake in his brainchild, may have to change his
mind, Sagawa said. "If Terry Matthews is a realist, he must
understand that he must sell the company now."
MacLellan, who has a 12-month price target of $20 on the
stock, anticipates that any attempt to mount a takeover bid
would range in price from $24 to $25 a share.
"We think the odds are low, of being acquired," MacLellan
added. Although executives have a fiduciary duty to examine
every bid received, the company's management is reluctant to
let the company go at these share levels, he said.
"There are no discussions right now, but that could
change," MacLellan added.
"The odds are better than they've ever been, but it's not a
slam dunk."
Newbridge holds its second-quarter results conference call
on November 18.
Newbridge may be in discussion with Alcatel to form a
tighter relationship, said John Wilson, analyst at Warburg,
Dillon Read in Toronto.
"One possibility is an arrangement with Alcatel similar to
the one they originally had with Siemens -- because that one
has gotten a little stale," he said.
($1=$1.46 Canadian)
e-mail lydia.zajc@reuters.com))
Copyright 1999, Reuters News Service
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