Latest telecom equipment deals show need for size
Thursday June 4, 12:45 pm Eastern Time
NEW YORK, June 4 (Reuters)
biz.yahoo.com
The two telecommunications equipments mergers seen in the past two days highlight the need for small companies to join forces to compete against the industry giants, analysts said.
On Thursday, French telecoms giant Alcatel Alsthom (ALA - news) agreed to buy Dallas-based DSC Communications Corp (DIGI - news) for $4.4 billion. This followed Wednesday's agreement for Tellabs Inc (TLAB -
news) to buy Ciena Corp for $7.1 billion.
In each deal, the buyer offered its takeover target the chance to join a bigger company with a broader product portfolio and deeper financial pockets.
The acquisitions also will help the combined companies, which will join research and development efforts, reduce the time it takes to bring new products to market.
''I think size is a factor. Big (telecom) carriers are getting bigger and bigger. They need to have suppliers with stronger backing,'' said Ted Moreau, a telecommunications analyst with R.W. Baird.
''Carriers are looking for total solutions instead of needing to have a group of engineers assemble various components from several suppliers,'' said Robert Wilkes, a telecommunications analyst with Brown Brothers Harriman.
The two deals sparked interest in other telecommunications equipment makers, analysts said.
Advanced Fibre Communications Inc (AFCI - news), one of the most active Nasdaq issues, jumped more than 10 percent or 3-15/16 to 40-7/16.
Advanced Fibre, however, may not be as attractive as Ciena or DSC since Advanced Fibre concetrates mostly on small telecommunications company networks and its stock has become pricey in recent months, analysts said.
As telecommunications companies become more focused on data transmission and Internet service, data equipment suppliers and voice suppliers will likely join forces.
''The next 12 months will stay pretty hot. The data networking companies and the voice companies could get together. The (Baby) Bells are looking to merge their voice and data networks together and they want turn-key solutions and want to have suppliers that can handle it all,'' said Chandan Sarkar, a telecommunications equipment analyst with SoundView Financial Group.
Lucent Technologies (LU - news), the telecommunications equipment maker spun off from AT&T Corp (T - news) in 1996, has made several small acquisitions over the past 18 months. Lucent is expected to make a more bold move this fall when it is freed from a two-year restriction against pooling-of-interest combinations that would unravel its favorable tax-free spin-of from AT&T, analysts said.
Lucent could partner with networking companies such as Cisco Systems Inc (CSCO - news) or Ascend Communications Inc (ASND - news), analysts said.
As the data and voice markets become more integrated, companies such as Cisco may benefit from a merger partner with better relationships with telecommunications companies, Moreau said.
Northern Telecom Ltd (NTL.TO - news) also may become more aggressive in searching for acquisitions, analysts said.
Ascend added 1-13/16 to 43-3/4, Cisco gained 11/16 to 75-5/16 and Lucent 1-7/8 to 71-3/8. |
