2/24:ÿWALL STREET JOUR:ÿÿÿ Alcatel to Acquire Newbridge Networks
ÿÿÿÿÿÿÿÿÿÿÿ February 24, 2000
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Alcatel to Acquire Newbridge Networks
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ In $7.1 Billion Deal, Broadens Offerings
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ By KEVIN J. DELANEY
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Staff Reporter of THE WALL STREET JOURNAL
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ PARIS -- Alcatel SA of France added new momentum to
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ its push into data networking Wednesday with the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ announcement of its planned $7.1 billion (7.07 billion
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ euros) acquisition of Newbridge Networks Corp. of
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Canada.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ The deal between the two
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ telecommunications-equipment makers, which was
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ widely anticipated, broadens Alcatel's high-speed
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Internet technology offerings, bolstering its efforts to
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ keep pace with powerhouse rivals like Nortel Networks
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Corp. and Cisco Systems Inc. Newbridge builds
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ switches that allow voice, video and data to travel over
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ networks at high speeds.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ "We now feel we have pretty much
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ everything we need in terms of
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ next-generation networks," said
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Krish Prabhu, chief operating
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ office of the French company's
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Alcatel Telecom business.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Under the terms of the merger
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ approved by both company's
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ boards, Newbridge shareholders
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ will get 0.81 of an Alcatel American depositary share
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ for each of their own shares, a premium of 11% based
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ on Tuesday's closing stock prices. To finance the deal,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Alcatel would issue new shares equivalent to 17.6% of
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ its current capital, increasing the company's theoretical
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ market value to around 54 billion euros.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Analysts said the price, which was equal to roughly 3.5
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ times Newbridge's sales, was lower than comparable
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ recent transactions, largely because of the Canadian
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ company's rocky performance over the past two years.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ
Speculation Ends
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ The deal ends speculation that began in November when
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Newbridge said it would put itself up for sale after
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ failing to meet analyst expectations in six of 10 quarters
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ and enduring several management changes. The company
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ hired Morgan Stanley Dean Witter & Co. to help it find a
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ suitor, and in late November said it was laying off 10%
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ of its work force, or about 600 employees. Alcatel was
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ represented by Credit Suisse First Boston in the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ transaction announced Wednesday.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Newbridge separately announced record sales for its
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ fiscal third quarter Wednesday, but a big loss after
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ extraordinary items. The company reported per-share
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ earnings of 13 cents a diluted share, before extraordinary
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ items and charges. A First Call Thomson Financial
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ survey had set analysts' consensus earnings estimate at
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ 11 cents a diluted share.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Stock Slips
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ In 4 p.m. trading Wednesday on the New York Stock
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Exchange, Newbridge shares were trading down $1.50,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ or 4.4% to $32.875. Alcatel's American depositary
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ shares traded at $43, down 9.9% or $4.75, on the Big
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Board. The shares had fallen 8.6% in Paris.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Some analysts were guarded about enthusiasm for the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ deal citing concern that Newbridge's troubles would
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ persist.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ The acquisition helps fill a gap in Alcatel's
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ asynchronous transfer mode, or ATM, technology
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ products. Company executives said the ATM switches,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ packaged with Alcatel's high-speed access offerings and
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Newbridge's network management products will enable
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ it to provide one-stop shopping for network carriers.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ATM enables switching between voice and data
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ transmission and is expected to be used for the next five
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ to 10 years before being replaced by Internet Protocol
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ technology for combined voice and data. The companies
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ said Alcatel's broader sales network and financial might
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ bolster sales of Newbridge's products.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Alcatel said the acquisition would result in an annual
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ $230 million in cost savings for the two companies by
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ 2002, and should boost the French company's operating
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ income by an estimated $160 million this year.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Newbridge will merge with Alcatel's Carrier Data
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Division to form the new Carrier Internetworking
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Division, headquartered in Canada. The move will
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ increase Alcatel's expected sales in this division to $2.5
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ billion from $1 billion.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Wednesday's announcement is the biggest in a technology
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ buying spree by the French company that began with its
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ 1998 purchase of DSC, a U.S. maker of telecom
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ equipment, for $4 billion. Since then, Alcatel has bought
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ a handful of U.S. firms with data-networking expertise.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ In the wake of these deals, the U.S. is the company's
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ biggest market, contributing more than 20% of sales. Just
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ a few years ago, Alcatel sold most of its products in
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ France. |
