Newbridge investors fear share
fallout
Getting pressure: Analysts say deal needs to
be done by Feb. 22
Jill Vardy
Financial Post
OTTAWA - Major institutional shareholders in Newbridge
Networks Corp. are growing nervous of the stock fallout if
Newbridge fails to announce soon that it has found a buyer.
Rumours that Newbridge is close to announcing it has reached a
takeover agreement with a larger telecommunications equipment
company sent the stock soaring 15% Wednesday. It closed in
Toronto at $39.70 yesterday, down 25½.
Informed observers say the Caisse de Depot et Placement du
Quebec, which owns almost five million Newbridge shares (2.6%),
and Fidelity Investments Corp., which owns more than eight million
shares, or 4.6% of Newbridge's stock in its mutual funds, are
quietly pushing Newbridge to have a deal to announce before or
when its third-quarter results are announced on Feb. 22.
"The Caisse and Fidelity are putting on a lot of pressure," said one
observer.
Neither would comment on the speculation. "The Caisse doesn't
comment on this kind of rumour," said Marie-Claude Rivet, a
spokeswoman for the fund. Fidelity also declined comment.
Ken Wigglesworth, Newbridge's chief financial officer, said the
pressure isn't surprising. "Institutions call very regularly, period, and
I'm sure some of them are asking 'what's happening,' 'how long is
this going to take,' 'this seems like a long time,' and so on," said Mr.
Wigglesworth. "We're providing no signals or anything. We're going
about our business."
He said the expectation of news by Feb. 22 is a deadline set by the
markets, not by Newbridge, which has set no internal deadlines for
pursuing strategic alternatives.
"I think it's just that Feb. 22 is the next time Newbridge will be
communicating in a detailed way with the public so people see that
as a meaningful date. On the analyst conference call that day there's
no way questions won't be asked on that area if we said nothing.
"You don't go out for drinks and sign a multi-billion dollar deal," he
continued. "Generally this process takes time and the best interest is
to go through all the alternatives at the full extent and do what you
have to do. Clearly we have shareholder value in mind."
Failure to meet the Feb. 22 market deadline will likely result in a
huge drop in the stock price. "If no buyer is announced [by Feb.
22] the stock will trade back down to the mid-teens," said Paul
Sagawa, technology analyst at Sanford Bernstein & Co. in New
York. "There's no love for Newbridge management. There's no love
for Newbridge in general. It's all greed pushing up the stock
because investors think the company will be sold soon."
"There is incredible pressure from institutional shareholders to make
a sale," agreed Robert MacLellan, technology analyst at CT
Securities. He believes a deal will be announced before or when the
quarterly results are unveiled.
Newbridge's third quarter ends on Jan. 31, and analysts say it could
beat their consensus estimates of 11½ a share. Mr. MacLellan said
he's optimistic the quarter will be a strong one.
Mr. MacLellan says Newbridge is a stock to buy largely because of
takeover speculation, and that investors will quickly tire if something
isn't announced soon. "Most people have been burned by
Newbridge disappointments, and rumours it's a target for acquisition
have popped up through late 1998 and all of calendar 1999," he
said. "Now the street is a little bit jaded. Now they want to see the
steak, not just the sizzle."
Possible buyers include Marconi plc., Alcatel SA, Siemens AG,
Ericsson AG, Cisco Systems Inc. and Nortel Networks Corp. |
