News.com. Ascend buys Stratus Computer
news.com
By Sandeep Junnarkar
Staff Writer, CNET NEWS.COM
August 3, 1998, 11:05 a.m. PT
update In a bid to move closer toward an era of
multimedia telecommunications over the Internet,
networking equipment maker Ascend
Communications announced today that it will
acquire Stratus Computer for about $822 million in
stock.
Ascend will acquire all
of the outstanding shares
of Stratus in a tax-free
stock-for-stock
exchange. Under the
terms of the agreement,
each share of Stratus will
be exchanged for 0.75
shares of Ascend, based
on Ascend's closing
price on July 31.
Ascend said it would divest itself of Stratus'
non-telecommunications' business before the end of
1998.
"I still don't think they needed the whole company,"
said Steven Frenkel, an analyst at Paragon Capital.
"Although they are going to sell off the other
divisions, how much are they going to get for them,
and who is going to buy them?"
Most analysts agreed that the task of finding buyers
may be more difficult than the company expects.
There is speculation that a buyer or several buyers
already have been found, which Ascend declined to
confirm.
"I don't think they are going to get much for those
divisions," Frenkel added. "Most likely, they are
going to have to eat the losses"
Shares of Ascend barely reacted to the news of the
acquisition, while shares of Stratus jumped.
Ascend's stock rose just over 2 percent and was
trading at 45.44. The stock closed Friday at 44.47,
having traded as high as 55.75 and as low as 22
during the past 52 weeks.
Stratus Computer shares rose nearly 12 percent, to
32.25. The company's stock has traded as high as
60.75 and as low as 21.44 during the past 52
weeks.
Ascend makes communication products used by
both Internet Service Providers and telephone
carriers. Its products can carry both voice and data
over a network, and Ascend hopes to fuse the
technologies to offer voice and data across a single
pipe in the future.
Stratus makes high-end computers designed to run
24 hours a day and to perform demanding tasks for
telephone carriers and other industrial uses. Stratus
also makes computers that run Signaling System 7
software, specially designed to intercept and
reroute data transmissions.
"The rapid growth of the Internet has increased
data traffic and strained the Public Switched
Telephone Network, forcing carriers to constantly
expand their telecom backbones," Ascend
president and CEO Mory Ejabat said in a
statement announcing the acquisition. "Our
products, combined with Stratus' SS7 switches,
OSS software, and fault-tolerant platform, allow
network service providers cost-effective, reliable,
and transparent means to relieve congestion while
reducing operating costs."
Ejabat will remain Ascend's president and CEO,
while Bruce Sachs, Stratus's president and CEO,
will become the company's executive vice president
and general manager of its carrier signaling and
management unit.
Ascend will take a one-time charge of
approximately $400 million in the fourth quarter
1998 related to the merger. The charge will include
the costs associated with Stratus' previously
announced restructuring, in which it laid off 350
employees.
The two companies expect an additional 150
positions to be eliminated as a result of their
combination.
Ascend competitor and networking giant Cisco is
said to be moving to acquire Summa Four to gain
position similar to that of the newly combined
company. In addition, Canada's Northern Telecom
agreed in June to buy Bay Networks.
Ascend's acquistion probably will not stop
speculation that the company is a takeover target
itself. The most-often mentioned suitors are Lucent
Technologies and Ericsson.
However some analysts argued that Ascend's stock
is highly overvalued.
"To my mind, the only issue is does it make Ascend
more, less, or just as attractive to Lucent," said
Bert Hochfeld, an analyst at the investment banking
firm of Josephthal & Company. "Frankly, from
Lucent's point of view, it might be nice to have
another product that you are selling to a telco.
He added: "The only reason to own this stock was
because of an interest in seeing whether [Ascend]
will get sold to Lucent, and I don't think this deal
will prevent them from being sold." [The only reason? Want to clarify?]
Related news stories
Ascend descends on rumor July 31, 1998
Ascend beats estimates July 15, 1998
Nortel-Bay deal a sea change June 15, 1998
Networking firms' boom time over June 11, 1998
Ascend to replace DEC on S&P 500 June 9, 1998
Bay, Ascend vie in VPN market May 4, 1998
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