03:03 PM ET 11/19/99
Newbridge shares edge up as takeover door opens
By Susan Taylor
OTTAWA, Nov 19 (Reuters) - Shares in troubled Canadian
telecoms equipment maker Newbridge Networks Corp.
posted gains on Friday after the firm opened the
door to takeover offers.
But analysts said there was little likelihood any deal
would be announced soon.
Newbridge shares on the Toronto Stock Exchange added C$1.95 to C$31.30 on Friday at midday, a gain of 6.6 percent. That is little more than half the 52-week high of C$60.50. The low is C$20.60.
In New York, the issue added $1-9/16 to $21-1/2 compared
with the year high of $39-14/16 and low of $14.
The gains follow Newbridge's announcement late on Thursday that it had hired a New York investment banker to consider strategic options, including a takeover, as part of an overhaul that includes cutting more than 700 staff.
"Management commentary will fuel continued takeover fever as Newbridge stated it had hired an investment banker and is fully committed to considering all strategic options," Credit Suisse First Boston analyst Paul Weinstein wrote in a report on Friday.
Chief Executive Terry Matthews told an employee meeting on Thursday afternoon that in six months they could be working for a different firm, a source close to the company told Reuters. Matthews added that Newbridge is not presently considering any offers and will strive to remain independent, the source said.
Newbridge, which reported on Thursday a weak second-quarter profit of 8 cents a share, has been labeled a takeover target since issuing its sixth earnings warning in 10 quarters on November 2 and announcing the resignation of President Alan Lutz.
The company is facing a sales slowdown for its flagship
asynchronous transfer mode (ATM) gear, particularly in the
booming United States, as the market awaits the company's new high-speed 50 gigabit switch.
The relatively modest market reaction on Friday to
Newbridge's decision to consider offers is tied to ongoing
questions about the company, analysts said.
"They're in a product transition, they're in a management transition -- a lot of uncertainty is there for the top line," said Patrick Houghton, analyst at Sutro & Co. in San Francisco.
"The one thing that saves the bottom line is they're doing some pretty drastic cuts, but that's not going to get the street excited. The street wants to see top-line growth."
A cost-cutting plan, which will be 90 percent complete in the fourth quarter, will trim C$100 million annually once
finished, Chief Financial Officer Ken Wigglesworth told
Reuters.
Contracting out service operations will save an additional C$50 million annually, while the savings from outsourcing volume manufacturing have not yet been calculated.
The cutbacks are seen as a cleanup of company finances to ease a takeover, analysts said.
But a deal isn't soon expected and analysts said that a
sticking point could be a high price set by founder Matthews, who is known for his passionate commitment to running the company.
"My concern is that the takeover speculation is going to
drive the stock to unreasonable levels in the short term," said Rob MacLellan, analyst at CT Securities Inc. in Toronto.
"People are going to expect offers to come next week, quite
bluntly. And in all likelihood, they're not."
Firms are putting out feelers, MacLellan said, but that is a far stretch from a done deal.
"The sources I'm hearing (say) that they are getting
expressions of interest from pretty well everybody other than Lucent Technologies Inc. and Nokia (Ab Oy),"
he said. "Expressions of interest are a long way away from a
bid, which is a long way away from a merger. But you're one big step closer."
Front-runners in the potential list of suitors include
France-based telecoms group Alcatel Alsthom , Swedish
telecoms equipment maker Telefon AB L.M. Ericsson ,
and German industrial and telecoms group Siemens AG .
Houghton agreed. "An acquisition is not imminent -- they're not in active discussion. It's just something that they're considering as an option. So it's not going to be anything that's going to happen any time soon."
($1=$1.46 Canadian)
((Susan Taylor, Reuters Ottawa Newsroom |
