SJ Mercury article. Ascend to buy Stratus (comments anyone?)
sjmercury.com
Posted at 10:21 p.m. PDT Thursday, July 30, 1998
July 31, 1998
BY ADAM LASHINSKY
Mercury News Staff Writer
ASCEND Communications Inc. (Nasdaq, ASND) plans to
acquire Stratus Computer Inc. (NYSE, SRA) for about $800
million in stock next week, the latest deal in the quickly combining
telecommunications and dataworking industries.
The buyout would cap a dramatic turnaround for Alameda-based
Ascend, whose previous acquisition, of Cascade Communications
Corp., derailed the company's stock for a year. It also thrusts Ascend
into the role of predator, despite the conventional wisdom that it is a
takeover target of Lucent Technologies Inc. (NYSE, LU).
Rumors of an Ascend-Stratus deal have been swirling on Wall Street
since mid-week and both companies' stock prices have surged. A
source familiar with the discussions confirms the acquisition will be
announced shortly. Another source, an executive with a company that
competes against Ascend, says that Marlboro, Mass.-based Stratus
recently had put itself up for sale.
Ascend has excelled at selling powerful switches that allow phone
companies to move data traffic. Stratus makes so-called
fault-resistant computers popular with financial-services and
telephone companies who cannot tolerate any downtime in their
systems.
Recently, Ascend has been beefing up its efforts to sell equipment to
telephone companies for carrying voice calls over networks based on
Internet technology. Stratus makes equipment -- based on a standard
known as System Signaling 7, or SS7 -- that allows telephone
carriers to route calls and offer value-added services like caller ID,
call waiting or three-way calling.
With Stratus, Ascend will be able to offer similar capabilities to its
customers.
''It makes perfect sense,'' says Paul Johnson, who covers Ascend for
BancAmerica Robertson Stephens out of New York. ''Ascend has
made it very clear they want to be more of a player in SS7.''
Stratus won't come cheaply for Ascend. The smaller company's stock
closed Thursday at $28, up 29 percent from where it began the
week, giving Stratus a market value of $782 million. Stratus last week
reported that weakening markets in Asia would force it to take a $20
million charge and lay off 350 workers. Its stock is down 26 percent
for the year while Ascend's has more than doubled.
Ironically, the very rumors that Ascend would be purchased are
enabling it to buy Stratus.
''Ascend's stock has risen because it had a good quarter and
because of people's assumption that Lucent is going to buy them,''
says Joe Noel, networking analyst for Hambrecht & Quist LLC in
San Francisco. ''Over the past four to six weeks, Ascend has printed
the money to buy Stratus.''
Ascend traded for $47 in June. With nearly 200 million shares
outstanding, the uptick in its stock price -- it rose $2.63, or 5
percent, Thursday to $51.50 -- is greater than Stratus' current value.
As with any deal that isn't completed, the situation could change. The
purchase also doesn't mean that New Jersey-based Lucent, the
former equipment arm of AT&T Corp. (NYSE, T) is out of the hunt.
Lucent is prohibited until Oct. 1 from using pooling-of-interests
accounting, a more favorable treatment than purchase accounting,
which would put a bigger dent in its bottom line. Ascend is now worth
nearly $10 billion, making it larger than any acquisitions for which
Lucent has used purchased accounting since it spun off from AT&T.
Executives with Ascend did not return phone calls. Stratus officials
have told wire services they will not comment on rumors.
Contact Adam Lashinsky at the San Jose Mercury News, 750
Ridder Park Drive, San Jose, Calif. 95190, or
siliconstreet@sjmercury.com or (408) 271-3782. |
