Okay, I'm going to lay out the reasons why I think LU wants to buy ASND, why ASND is (somewhat reluctantly) positioning itself to be attractive to LU as of 10/1/98, and why LU will buy ASND for about $15B or $75/share soon after 10/1/98.
LU has rationally evaluated the competitive situation. LU would prefer to follow the CSCO model of buying 10-15 startups/year with bleeding edge tech. But, LU realizes that strategy will take too much time and it needs to buy ASND for its tech and installed base now in order to become the preeminent data network provider worldwide before it is too late and its voice/circuit equipment is obsoleted faster than anyone expected.
LU and NT are sworn enemies. NT made its move and bought BAY in 6/98.
CSCO believes it can fly solo (with partnerships with European suppliers (ALA?)) while buying 10-15 startups/year.
LU is behind in data networking and international market. It covets ASND/Cascade tech (GX550 and next generations), installed base worldwide with largest telecoms/ISPs, and Silicon Valley expertise. LU has $100B market cap, arguably overvalued stock price to use as currency, and can very easily digest ASND for $15B after 10/1/98 pooling of interest restrictions are lifted.
ASND wants to remain an indedependent company because it is well-positioned in the key profitable networking spaces and is only networker standing up to CSCO.
But, ASND also realizes that NT, LU, CSCO, Siemens, ALA and ERICY will be formidable competitors over time. ASND could have 1-2 more very profitable years, but cumulative R&D, pricing and margin pressure will make it difficult over time.
Thus, ASND decided in early 1998 (after its stock price recovered) not to make acquisitions (why no start-up acquisitions in the last year?), keeps its cash/investments, and directs R&D to areas complementary to LU (e.g., no next generation GRF development).
ASND has to appear to be strong and ready to compete as an independent company in order to maximize the sale price to LU.
LU sees a worldwide telcom equipment market size of hundreds of billions of dollars as data replaces voice equipment over the next 5-10 years. $15B or $75/share for ASND suddenly becomes very reasonably.
LU, ASND (and NOKIA?) get together and become the preeminent worldwide telecom supplier in the early 21st century. CSCO continues to do well, but NT/BAY get left in the dust. TLAB/CIEN are the wild card.
If this scenario is correct, I believe the following events will occur in the next few months.
ASND will want to keep its stock price from soaring in order to keep itself within an attractive price range for LU.
As reflected in the 7/14/98 2Q98 conference call, ASND management will continue making conservative statements to analysts and will downplay/not announce new contracts (e.g., AT&T) to avoid stock runups.
If ASND really wants to remain independent, the opposite scenario will occur starting in 9/98. ASND management will start to pump its prospects/contracts and will announce some start-up purchases.
I welcome comments (pro and con) on this scenario. If you can, please be detailed so we can have a substantive discussion.
It is, of course, speculation because who really knows what lurks in the hearts of LU and ASND management. Remember, almost every brokerage analyst who covers ASND has publicly stated that LU/ASND would be a killer combination. djane |
