4/28/98 NY Times on LU/YURI.
nytimes.com
Lucent Technologies to Acquire Yurie
Systems for $1 Billion
By KENNETH N. GILPIN
Extending an aggressive push into the data networking business,
Lucent Technologies Inc. said Monday that it had agreed to
acquire Yurie Systems Inc., a small but fast-growing manufacturer of
devices that make it easier to send data and video over the Internet, in a
cash transaction valued at $35 a share, or $1 billion.
The deal was an enormous payday for Yurie, a Landover, Md.,
company that was founded in 1992 and went public in the winter of
1997. It has about 250 employees. Last year, Yurie earned $6 million
on revenues of $51 million.
Securities analysts said Lucent was paying a rich price, but not one
outlandishly out of line with similar purchases in data networking.
"Based on their first-quarter revenues, Yurie is on track to do about
$100 million worth of business over the next 12 months," said James P.
Parmelee, an analyst at Deutsche Morgan Grenfell.
"Typically, the purchase price of leading-edge technology companies is
five times to 10 times 12 months' forward revenues. This deal is at the
high end of the range, but it is not without precedent."
Despite the price, analysts said the purchase made a great deal of
strategic sense for Lucent.
Last year the company introduced a three-barreled strategy to address
the data networking business: develop products internally, form
partnerships with outsiders and acquire other companies.
Since then, Lucent has acquired Livingston Enterprises Inc. and the
Prominet Corp., two leading data networking equipment technology
companies. Last August it entered into a partnership agreement with
Yurie to sell its networking equipment.
With Yurie, "Lucent now gets a leading product in the ATM-access
market," said Nikos Theodosopoulos, a managing director at UBS
Securities, referring to asynchronous transfer mode, the high-speed
communications technology used to transmit data.
"Over the past two years we have been saying that Lucent will be
making acquisitions in the data networking market because time to
market is a critical element here," he added.
"To compete in the world of high tech, you need to buy technology,"
said Gregory S. Geiling, an analyst at J.P. Morgan Securities. "This is
an expensive acquisition, but it is one Lucent needed to make."
During a conference call with reporters, Bill O'Shea, president of
Lucent's data networking systems group, said, "This company is early
to market with leadership products in a market we think is about to
explode."
Parmelee from Deutsche Morgan Grenfell estimated the global market
for ATM equipment to be in excess of $1 billion, and is growing at
more than 30 percent a year.
Lucent said Yurie would maintain its base in Landover. Jeong Kim,
Yurie's chairman and chief executive, will become president of carrier
networks within Lucent's data networking systems group.
Despite the apparent strategic attractions of the transaction, Monday
the deal did not seem to sit well with Lucent shareholders.
On the New York Stock Exchange, Lucent's stock price, which has
risen sharply so far this year, fell $1.4375, to $71.6875. On the
NASDAQ market, Yurie's stock price jumped $3.25 a share, to
$34.75.
Since all of Yurie's full-time employees own stock or stock options,
there was understandable jubilation at the company's headquarters.
"The day the deal closes, some Dom Perignon might be appropriate,"
said Michael Crumlin, Yurie's director of marketing and public relations.
He estimated the deal transformed from 20 to 30 Yurie employees into
millionaires. Employees will be given the option of transferring
ownership of Yuri stock or options into Lucent securities, he said.
By far the biggest winner was Kim, who took out a second mortgage
on his house to start Yurie and retains a controlling interest in the
company.
"By my numbers, he is now worth about $510 million," Crumlin said, up
from around $300 million at the end of last week.
Lucent said the purchase will likely result in a one-time charge against
earnings that will probably be taken in its third fiscal quarter, assuming
the deal is completed by the end of June. The company did not give an
indication of the size of the charge.
Lucent also said the deal was expected to be slightly dilutive to its
earnings next year.
Theodosopoulos from UBS estimated the transaction will knock about
5 cents off of Lucent's earnings next year, which he currently projects at
$1.95 a share.
Goldman, Sachs & Co. acted as Lucent's financial adviser on the
transaction. Yurie Systems was advised by BT Alex. Brown.
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