Newbridge puts self up for sale Possible takeover part of radical restructuring that includes massive cuts to work force, operations
SIMON TUCK
Technology Reporter
Friday, November 19, 1999
Ottawa -- Newbridge Networks Corp. officially put itself on the auction block yesterday as it announced a radical restructuring that includes slashing 10 per
cent of its work force and carving up its operations.
The Kanata, Ont., communications equipment maker -- bloodied after several quarters of underperformance -- said it is using a financial adviser to help it find
potential buyers.
"We are fully committed to considering all strategic options," Pearse Flynn, the company's new president and chief operating officer, told analysts during a
conference call. "I would say selling the company would be a strategic option."
As it put itself up for sale, Newbridge unveiled its much-anticipated "action plan," which includes more than 700 job cuts, outsourcing of mass manufacturing
and many service functions, more focused research, another executive change, and a range of other cuts.
The changes, which will cut quarterly costs by an estimated $53-million, are designed largely to reverse the company's slumping sales in the United States, where
its flagship product, a high-speed data switch, has been losing ground to arch-rival Lucent Technologies Inc. of Murray Hill, N.J.
The decision to consider a sale follows months of speculation that the data communications specialist would not be able to withstand the pressures to combine
forces with a larger voice equipment specialist.
The telecommunications industry has been converging its two flanks and Newbridge is the last significant data specialist left without a partner.
Mr. Flynn said the changes come from both he and chief executive officer Terence Matthews, but said he is not a "puppet."
"Terry and I are going to build this thing together."
Analysts, who have been virtually unanimous in their recommendation that Newbridge should be sold, applauded the move. "You get invited to bids that you
wouldn't otherwise [as a smaller player]," said Gurinder Parhar, a technology analyst at Dundee Securities Corp. in Toronto.
Jim Kedersha, a technology analyst at SG Securities Corp. in Boston, said the company, which has consistently maintained that it can make it as an independent,
is signalling a significant change of direction. "I think the big change is that Newbridge is saying to the world: 'We get it,' " Mr. Kedersha said. "We can't go it
alone."
But some analysts emphasized yesterday that there's a big difference between being up for sale and being sold. Robert MacLellan of CT Securities Inc. in
Toronto said Newbridge will likely not get the offer it wants. "Expectations are ahead of reality."
Richard Woo of Thomson Kernaghan & Co. Ltd. in Montreal said he was skeptical about the company's intentions. "They're stalling," he said. "They don't want
the stock price to fall."
Newbridge shares jumped 5.4 per cent or $1.50 to $29.35 yesterday on the Toronto Stock Exchange as takeover talk continued to swirl around the company.
The stock gained 36 per cent last week after The Globe and Mail reported that two European telecommunications giants -- Alcatel SA of France and L.M.
Ericsson Telephone Co. Inc. of Sweden -- are interested in buying Newbridge. Speculation that Newbridge will sell has increased dramatically since the
company issued its latest profit and earnings warning on Nov. 2. The warning was Newbridge's seventh in the past 10 quarters.
Yesterday's restructuring announcement, which included final results from the second quarter, was released after markets closed.
Analysts say the big questions now surrounding Newbridge, Canada's second-largest technology company, are: Who will make offers and for how much?
Alcatel said earlier this week that Newbridge will be bought -- but not by it. Ericsson's top executive, on the other hand, left the door open to a possible deal.
Analysts say the industry's other global giants are likely also considering making a bid. The list of candidates includes: Marconi PLC of Britain, Lisle, Ill.-based
Tellabs, Nokia SA of Finland and Newbridge's most important partner, Siemens AG of Germany. None of these players want to be the one left without a
partner -- or comparable, home-grown technology -- when the market turns to high-speed wireless infrastructure, which requires Newbridge's asynchronous
transfer mode (ATM) or rival Internet Protocol technology as a pillar.
Newbridge also said yesterday that it earned $21.5-million or 8 cents (U.S.) a share on revenue of $481-million (Canadian) during the quarter that ended Oct. 31.
Those figures are in line with the company's warning earlier this month that it would not meet expectations, but in the lower end of the range that was provided.
During the same period a year earlier, Newbridge earned $48.2-million or 18 cents a share (U.S.) on revenue of $456.8-million (Canadian).
SHAKEN AND STIRRED
Newbridge Networks unveiled a major restructuring to cut quarterly costs by about $53-million. It will:
- Eliminate 10 per cent of the work force, a total of more than 700 employees.
- Outsource global customer service, including call centres.
- Outsource mass manufacturing now done in Kanata, Ont., and France.
- Reduce the number of areas in which it does product research. |
