Who's Likely to Merge Next?
By JOHN T. MULQUEEN
Ascend Communications Inc. appears to be in everyone's sights, now that Bay Networks has been picked off by Northern Telecom.
Securities analysts said this week that Lucent Technologies Inc. probably will make a bid for Ascend if the latter is still available this fall.
Oct. 1 is the first day that Lucent will be free from regulatory restrictions to use its valuable stock to buy another company using pooling accounting and thus avoid the type of earnings hit that Nortel will encounter with its purchase of Bay Networks.
Neither Lucent nor Ascend would comment this week on the speculation surrounding their companies.
Ascend's carrier switches and TNT concentrators for Internet service providers will generate more revenue and profits more quickly than Bay's hubs and IP capability are likely to do for Nortel, said Farrokh Billimoria, an analyst at Hambrecht & Quist.
"Lucent can leverage Ascend's product line more easily and faster than it could Bay's," he said.
Lucent also had been widely considered a Bay suitor.
There is some product overlap between Ascend's TNT product line and the PortMaster concentrators from Livingston Enterprises Inc., acquired by Lucent last year for more than $600 million, but the customer base is different.
"Livingston is selling to mid-tier ISPs while Ascend is in the high end of the market," Billimoria said.
Nikos Theodosopoulos, an analyst at UBS Securities LLC, agreed that Ascend is the most likely target for Lucent because Ascend's Cascade division has been more successful than Lucent in selling frame relay, ATM and multiservice switches to carriers.
Rick Malone, principal in Vertical Systems, a company that advises investment bankers on mergers and acquisitions in this market, said Ascend has won a number of major deals with its Cascade GX550 switch and has more in the pipeline.
Ascend could cost as much as $14 billion, according to Malone. With the financial wherewithal to buy Ascend at that price, Lucent could write off the investment in Livingston without batting an eye, he said.
Malone thinks Cabletron Systems also could be an attractive takeover candidate because of its sales force, its network management capability and its software products. He noted that hubs can be fitted into a network architecture that integrates data and voice over one wiring scheme. "They will want the LAN," he said of Lucent.
But Theodosopoulos thinks Lucent is not as interested as Nortel in buying an internetworking vendor with an installed base of customers.
"They want to see if they can be successful selling higher growth products such as Gigabit Ethernet and Layer 3 switches rather than owning hubs and shared media products," he said. "They are buying products, as opposed to customer bases."
Cisco Systems is likely to go it alone at this point, noted 3Com chairman Eric Benhamou. "Cisco can't be aligned with any telecom [equipment] vendor. They are too threatening," he said, because some of Cisco's products compete directly with those vendors for carrier switching contracts.
--Jeff Caruso contributed to this story.
|
