BAY NETWORKS SAID TO BE UP FOR SALE; STOCK UP 15%
May 13, 1998 1:55 PM
By Mark Boslet and Joelle Tessler
NEW YORK (Dow Jones)--Bay Networks Inc.'s
(BAY) days as an independent company could be
numbered.
Wall Street analysts and one investment manager said
rumors are circulating that Bay Networks has instructed
its investment bankers to prepare financial documents
about the company to show potential buyers.
Bay officials were not immediately available for
comment.
Speculation that Bay is up for sale is not new, but the
market talk intensified Wednesday after Bloomberg
News late Tuesday reported that the company rejected
an acquisition offer from Northern Telecom Ltd. (NT)
as too low.
Earlier Wednesday, Bay officials declined to comment
on that report. Northern Telecom also declined
comment.
Bay Networks' NYSE-listed shares were recently up 3
5/8, or 15.1%, at 27 5/8 on volume of 11,376,500
compared with an average daily volume of 4,230,200.
Telecom Equip Makers Seen Interested In Co.
Bay Networks appears to be willing to consider
takeover offers from interested suitors, analysts said, as
it tries to position itself to better compete with
networking industry giant Cisco Systems Inc. (CSCO).
"The company is open to looking at everything and
anything," said one buy-side technology analyst. "They're
looking at all options."
Many analysts have speculated that Bay could merge
with a large telecom equipment maker. Cowen & Co.
analyst Christopher Stix noted that Bay Networks
would give a telecom equipment company channels into
the enterprise market as well as "the only credible carrier
router" alternative to Cisco's product.
The companies considered most interested in Bay
Networks include Northern Telecom, Alcatel Alsthom
(ALA), Ericsson Telephone Co. (ERICY) and Siemens
AG.
Analysts say these companies may want to make a bid
for Bay before October, when Lucent - also seen as a
likely suitor - would be free to do a pooling of interest
acquisition. Lucent is currently prohibited from making
pooling of interest deals because it was spun off from
AT&T Corp. (T).
The acquisition rumors, which have circulated for
weeks, have also mentioned Compaq Computer Corp.
(CPQ), Intel Corp. (INTC) and Fujitsu Ltd. as possible
suitors, although these companies are seen as less likely
possibilities.
A $36-a-share price tag has been repeatedly named as
a likely takeover price for Bay. One analyst noted that
Bay's shares were trading in the low $30-a-share range
before the company said in mid-March that it would
miss earnings expectations for its fiscal third quarter,
which ended in March.
Stix said he believes the company would be worth
something in the mid-$30 range in a takeover. He said a
price between $30 and $35 a share for Bay would be
equal to roughly 3 times the $2.4 billion in sales he
projects Bay will do in calendar year 1998.
The company's disappointing earnings outlook, which
helped reignite the takeover talk, highlighted that Bay
was have some trouble in ramping up its new line of
Accelar routing switches and that it faces a lot of
competition in the market for low-end workgroup
switches.
Several analysts said that while Bay Networks Chief
Executive David House did not discuss any specific
merger options at Networld+Interop trade show last
week, he did tell analysts that the company would allow
shareholders to decide whether to sell.
- Mark Boslet; 650-496-1366
- Joelle Tessler; 201-983-5285
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