NO NEWS IS GOOD NEWS
Share-price rise signals profits on track; acquisition
talk grows
James Bagnall
The Ottawa Citizen
The share value of Newbridge Networks Corp. jumped 16.3 per cent yesterday,
based in part on analysts' rising confidence that the company will meet or exceed
its financial targets for its third fiscal quarter ended Jan. 30.
Heightened investor interest in the possibility Newbridge could soon be acquired
is likely also a factor.
If Newbridge's sales or earnings had come in significantly below consensus
projections, the analysts' thinking goes, this information would have already been
conveyed to the public in the form of an earnings "preannouncement."
"When you cover Newbridge," said George Hunt, an analyst with
Intersate/Johnson Lane, a U.S.-based securities firm, "you're happy when you
hear nothing."
Newbridge could still surprise people with an early warning, but the odds of its
doing so lengthen with each passing day until Feb. 22, the scheduled release date
for its results.
The consensus estimate for the quarter, according to IBES Inc., calls for a profit
of 13.5 cents U.S. a share, down from 17 cents U.S. for the year -ago period.
Mr. Hunt reckons Newbridge will report sales of $485 million, up from $450.8
million a year earlier.
Rumours about a near-term acquisition of Newbridge could also be helping to
drive up the price of the shares, which closed yesterday at $47 on the TSE, up
$6.60.
"There's more chatter south of the border about an acquisition," said Rob
MacLellan, an analyst with CT Securities, "and when you get U.S. momentum
investors involved, the share price starts rising."
It's been three months since Newbridge chairman Terence Matthews revealed
that he would be willing to consider selling his company to a larger player. But
only recently has the firm appeared close to taking a definitive position.
Among the firms most actively doing due diligence within Newbridge is Alcatel
SA, the France-based multinational, which is aggressively pursuing the North
American data-networking market. Siemens AG of Munich, Tellabs Inc. of
Chicago and Marconi PLC of Britain are also potential candidates.
Newbridge added a fresh wrinkle yesterday when it filed a notice of its intention
to reduce its 26.4-per-cent stake in CrossKeys Systems Corp. of Kanata to 19.5
per cent.
On one hand, this could be taken as a sign that Mr. Matthews really is interested
in withdrawing from his Newbridge empire. CrossKeys was the first Newbridge
affiliate, one of what became more than a dozen start-ups funded with capital
from Newbridge and Mr. Matthews personally.
Newbridge has recently unloaded its stake in several affiliates and acquired others
outright. But much of this activity was prompted by former chief operating
officer Alan Lutz.
On the other hand, several potential acquirers of Newbridge might find
CrossKeys useful. It makes software that allows Newbridge gear to work with
telecommunications equipment from other firms, including competitors.
CrossKeys software, in other words, is the glue that ties everything together.
Seen in this light, the reduction of Newbridge's CrossKeys stake could suggest
an acquisition is further away.
Investors yesterday appeared more inclined to believe the former. |
