THREAD --- BAY is a major supplier to LU ---Wednesday May 13, 10:32 am Eastern Time
Bay shares rise on fresh deal speculation
By Brendan Intindola
NEW YORK, May 13 (Reuters) - Speculation that Bay Networks Inc. is amenable to a takeover gained momentum Wednesday, sending the stock higher, with analysts saying the question is when, not if, a deal will be made.
Bay shares were up 3-15/16, or nearly 16 percent, to 27-7/8 in early New York Stock Exchange trade that began after a 15-minute delay due to an order imbalance.
''It is like a never-ending, nonstop rumor mill with these guys. One of these times, though, everyone expects it will be bought,'' said John Duffy, analyst at Fahnestock & Co.
A news wire service report carried by the Los Angeles Times today said the Santa Clara, Calif.-based networking company had rejected a takeover offer from Northern Telecom Ltd. (NTL.TO - news) but was open to higher bids.
A spokesman for Northern Telecom declined comment.
Bay officials were not available for comment. According
to the published report, Bay told some analysts that it had rejected a NorTel offer. The report said Bay would consider higher bids from NorTel or other suitors.
Paul Sagawa, analyst at Sanford Bernstein, said that at a recent meeting with Bay officials, ''They did not specifically say NorTel would make an acquisition of them, but they did say they would do the right thing for shareholders, and if an acquisition offer for fair value for the company came over the table, they would consider it strongly, which is essentially saying the company would be for sale for the right price.''
Sagawa added that at the meeting, Bay Chief Executive Officer David House said he felt that ''the multiple assigned to his company in the marketplace is ridiculously low.''
''So I suspect that they would not consider anything less than, say, five times sales at the outside, which would put them in the $50 (per share) range,'' the analyst said.
Sagawa quoted House as saying that he ''expects his company to be valued at, not the same multiple of a Cisco (Systems Inc. (CSCO - news)), but certainly within shouting distance.''
''Cisco is valued at over 10 times sales and Bay is valued at 2.4 times sales,'' Sagawa said.
He added, ''It (Bay) is in play. I think there are others out there that would be very interested in making this acquisition. There was a hot rumor on the floor at Networld+Interop (an industry trade show in Las Vegas last week) that (Telefon AB L.M.) Ericsson (LMEb.ST) was preparing a bid.''
He continued, ''We also know that Lucent (Technologies Inc. (LU - news)) is a major distributor of Bay gear and has been making a number of major acquisitions. Given the size of Bay, the speculation has continually been that Lucent would wait until they could do a pooling-of-interests transaction in the fall, before taking such a large bite.''
Analysts said Lucent is likely waiting until after the second anniversary of its spin-off from AT&T Corp (T - news), this fall, to do a large-scale deal to take advantage of a tax-favored pooling-of-interests transaction.
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