Ascend shares slightly lower after Stratus news
NEW YORK, Aug 3 (Reuters) - Ascend Communications Inc. <ASND.O> shares were slightly lower in morning trading on Monday after the company said it planned to acquire Stratus Computer Inc. <SRA.N> in a deal worth $822 million in stock.
Ascend stock hit a high of $45.875, up more than a $1, near the opening on Monday, but settled back to $44.25, down 22 cents, as the stock failed to recover from a $7 selloff Friday in anticipation of the deal.
Still, initial reaction to the terms of the deal by some Wall Street analysts was favorable.
Brokerage B.T. Alex. Brown said it upgraded its rating on Ascend to buy from market perform, while J.P. Morgan reiterated its buy rating and Merrill's analyst made positive comments.
"My reaction is favorable," Merrill Lynch analyst Joe Bellace said of the terms of Ascend's deal to acquire Stratus. "There are a lot of positives," he said.
J.P. Morgan analyst William Rabin said he regretted that Ascend was doing the deal at this time, fearing that it could distract the company from its existing business plans.
Nonetheless, Rabin reiterated his buy rating on Ascend, citing a variety of benefits for the company.
"I am sorry they did it," he said. "Ascend is recovering so well, both in business fundamentals and in its stock price," Rabin said. "I was hoping the management team would stay focused on executing its existing plans," he said.
"The deal doesn't change any of the fundamentals," Rabin said, noting that Ascend remains the top supplier of high-speed data switching equipment to phone network operators, both in the strength of its technology and its market momentum.
Further details of the B.T. Alex. Brown upgrade were not immediately available.
Ahead of the announcement, which had been widely rumored on Wall Street last week, Bellace was wary of the deal, but he said the planned divestiture of Stratus' non-telecom related operations and the deal's positive impact on 1999 year earnings had dispelled his concerns.
In its statement, Ascend had said it expected earnings for the combined company of over $1.70 per share, which analysts said means that Stratus would add 10 cents or more to Ascend's projected earnings during the 1999 year.
Ascend stock tumbled $7.03 to $44.47 on Friday on concerns that the deal would distract Ascend's existing business plans and could servce as a barrier to a potential acquisition by Lucent Technologies Inc. <LU.N>, which has figured in the stock's strong performance through much of 1998, analysts said.
Rabin said the Ascend-Stratus deal doesn't preclude a possible takeover of Ascend by Lucent and Friday's selloff of Ascend stock had been overdone.
He noted that the $2 billion in Ascend's market capitalization that vanished on Friday was over concerns on a deal only slightly in excess of $800 million.
11:21 08-03-98
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