from WSJ re merger/DSC
June 4, 1998
Alcatel to Buy DSC Communications
In Stock Swap Valued at $4.4 Billion
Dow Jones Newswires
French electronics group Alcatel Alsthom SA Thursday announced plans to acquire
telecommunications-equipment maker DSC Communications Corp. for about $4.4 billion in
stock.
Shares of Plano, Texas-based DSC advanced 4.7% to $19.6875 Wednesday on speculation
that DSC would become the next telecommunications-equipment maker to be acquired in the
wake of Tellabs Inc.'s planned $7.1 billion acquisition of Ciena Corp.
Alcatel will exchange 0.815 of an American depositary
receipt, or ADR, for each DSC share. Alcatel's ADRs
settled at $43.438 Wednesday. At that level, the deal
values each of DSC's 125 million shares outstanding at
about $35.40 -- a rich 80% premium over Alcatel's closing
price on Wednesday.
Alcatel's ADRs slid in the wake of the deal's announcement, falling $3 to $40.4375 in early
trading Thursday on the New York Stock Exchange. DSC's shares soared on the news,
jumping $9.4375 to $29.125 on the Nasdaq Stock Market.
DSC has long been rumored as a takeover target, but the Tellabs-Ciena deal, announced
Wednesday, renewed speculation about other telecommunications-equipment companies. Only
a few days after DSC warned it would post a surprise first-quarter loss, it then, last month,
announced that James Donald would retire as president and chief executive officer but remain
chairman. Analysts have been critical of DSC's management and applauded the move.
DSC makes products very similar to those made by Ciena and Tellabs. Last month, Bell
Atlantic Corp. awarded $1.5 billion in contracts to five companies, including DSC, for
equipment and software to upgrade the Baby Bell phone company's networks to handle data
and video traffic. About $500 million of the total was spread between DSC, Ciena and Tellabs.
DSC won a contract to provide so-called cross-connect systems that help to route voice and
data traffic through different types of network equipment.
The proposed Alcatel-DSC deal has been approved by the boards of both companies and is
expected to close in four months. The companies expect annual savings of about $200 million.
The marriage would underscore Alcatel's efforts to remake itself into a focused
telecommunications-equipment company. The company's earnings soared 74% last year to 4.7
billion francs ($792.2 million) as revenue advanced 15% to 185.9 billion francs, largely
because of a sharp improvement in its telecommunications division. DSC had revenue of $1.6
billion last year.
Serge Tchuruk, Alcatel's CEO, said, "Alcatel's strategy is to be a pre-eminent world-wide
player in the evolution of networks from narrowband to broadband, with voice/data
convergence."
Indeed, it is that convergence that has driven many mergers in recent weeks. The voice- and
data-networking industries are rapidly converging as companies in both sectors join forces. In
addition to the Ciena-Tellabs deal, Canadian telecommunications-equipment firm Northern
Telecom Ltd. Wednesday announced plans to buy a 19% stake in data-networking firm
Plaintree Systems Inc., the latest in a string of purchases. Lucent Technologies Inc., the big
equipment maker spun off from AT&T Corp., has also been buying networking firms.
The telecommunications-equipment companies are beefing up their assets to challenge big
data-networking companies such as Cisco Systems Inc., which has been making inroads in the
telecommunications-carrier market. |
