CKEY story after the close with helpful comments
By Susan Taylor
OTTAWA, Feb 1 (Reuters) - Network gear developer Newbridge Networks Corp., whose sale is said to be imminent, announced on Tuesday it plans to cut its stake in affiliate CrossKeys Systems Corp.
Ottawa-based Newbridge (Toronto:NNC.TO - news)(NYSE:NN - news), under increasing scrutiny by shareholders awaiting word on its sale, said it plans to sell 1.3 million shares in CrossKeys (Toronto:CKY.TO - news)(NasdaqNM:CKEY - news), reducing its stake from 4.9 million to 3.6 million shares.
The move will trim Newbridge's holding from 26.4 percent to 19.5 percent of common shares outstanding in its spinoff CrossKeys, which develops software for telecommunications companies to manage network performance.
CrossKeys shares were trading at C$12.80 at midday on the Toronto Stock Exchange, down C$1.55, and at 8-7/8 on the Nasdaq, down 7/8, after the announcement.
Newbridge stock was among Toronto's net gain leaders, adding C$5.60 to C$45.90, an increase of 13.49 percent, while it rose 3-7/16 to 31-3/4 in New York.
``We support CrossKeys efforts to broaden its shareholder base by reducing our level of ownership,' said Newbridge Chief Executive Terry Matthews in a statement.
The move comes after Newbridge announced it had hired an investment banker and was open to offers when it reported weak second-quarter results on November 18.
``It does seem that they've been paring back or cleaning up some of the affiliate relationships they have,' said John Wilson, analyst at Bunting, Warburg Dillon Read.
Recent speculation suggests French telecoms group Alcatel Alsthom is leading the list of Newbridge suitors, which includes German industrial and telecoms firm Siemens AG and Swedish telecoms equipment maker Ericsson North American firms named as potential buyers include network gear suppliers Nortel Networks Corp. (Toronto:NT.TO - news), Cisco Systems Inc. (NasdaqNM:CSCO - news) and Tellabs Inc. (NasdaqNM:TLAB - news)
``It's (the stock) up on rumors that they could get bought out,' said Patrick Houghton, analyst at Sutro & Co. ``I think discussions are underway and I think that there is probably a couple of companies that have been sniffing around doing some due diligence.'
Newbridge, which ended its third quarter on Sunday, is also anxiously being watched by the market this week for an earnings warning. The firm has issued warnings in six of its last 10 quarters that it would not meet analysts' estimates.
``If they don't pre-announce by the end of the week, they're not going to,' said Rob MacLellan, analyst at CT Securities.
``The good earnings will help the stock, definitely, but the first and foremost in everybody's mind is: Are they going to be acquired? By whom? When? For how much?'
Newbridge said on January 7 that it was confident its financial performance would meet forecasts, which First Call/Thomson Financial records at 11 cents per share.
The plan to reduce Newbridge's stake in CrossKeys appears positive for both firms, MacLellan said.
Newbridge fattens its cash reserves, while CrossKeys gains independence from its parent -- a relationship that some analysts said hindered its ability to win contracts with Newbridge rivals.
``It's in the best interest of CrossKeys to be as independent as possible...and it is good news from Newbridge's point of view, because it brings money in the coffers,' said MacLellan.
``The stock's (CrossKeys') had a good ramp from its doldrums -- it's still below its initial offering price in Canadian dollars, but the company has exhibited a pretty good turnaround.'
CrossKeys shares have moved between a 52-week low of C$4.00 and a high of C$15.65.
($1=$1.45 Canadian)
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