Long-Running Takeover Rumors Regarding Bay Networks Intensify
June 04, 1998 4:10 PM
NEW YORK -(Dow Jones)- The rumor that refuses to
die - that computer-networking equipment maker Bay
Networks Inc. will soon be sold - intensified Thursday
with talk that Canadian telecommunications-equipment
maker Northern Telecom Ltd. has made Bay an offer of
$40 a share.
Shares of Santa Clara, Calif.-based Bay (BAY) finished
trading up $2.938, or 11%, at $30.875. Volume of 10.5
million placed Bay atop the Big Board actives. In
addition, options activity heated up. Traders bought
at-the-money and out-of-the money call options, which
will increase in value if Bay signs a deal over the
weekend.
Bay has been closely watched because it stumbled badly
in one of the technology world's hottest markets. When
it was formed by a 1994 merger, Bay's sales surpassed
those of current market leader Cisco Systems Inc. Cisco
and others targeted and won the lion's share of the
Internet business. Shares of Bay traded higher last week
on renewed chatter that a long-rumored sale may be in
the works. Rumors have been swirling around Bay since
mid-March when the company warned it would miss
earnings expectations.
The takeover talk intensified a few weeks ago after a
report surfaced that the company rejected an offer from
Northern Telecom. Bay denied the report, but its
response has done little to stop scuttlebutt that NorTel
would come back with a higher bid.
Bay Networks has found itself facing competition from
Cisco and 3Com Corp. in low-end workgroup
switches, a market that Bay had to itself until late last
year. Many of Bay's products are becoming more like
standard commodities, subject to intense competitive
pressures from Cisco and 3Com.
Bay's troubles come amid a rapid convergence of the
voice and data networking industries. Companies in both
industries are stockpiling promising technology and
forming key alliances to develop gear that can handle
voice, video and data simultaneously.
Rumors making the rounds Thursday said Bay would
consider a NorTel offer at a special board meeting this
weekend. One trader told Dow Jones that NorTel
wants to reach an agreement before Bay's price runs up
in response to the rich premium Tellabs Inc. agreed to
pay in its planned acquisition of Ciena Corp. The rumors
may have also been stoked by Alcatel-Alsthom SA's
announcedment Thursday that it will gobble up DSC
Communications Corp. Another industry source said
"this is going to be the summer of acquisitions, and
they're all going to be big."
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