Ascend Buys Stratus In $822 Million Stock Swap Deal 08/03/98
Newsbytes, Monday, August 03, 1998 at 15:01
ALAMEDA, CALIFORNIA, U.S.A., 1998 AUG 3 (NB) -- By Sylvia Dennis,
Newsbytes. The mega merger summer has continued this week with a major
stock swap deal between Ascend Communications [NASDAQ:ASND] and
Stratus Computer [NYSE:SRA]. The deal is worth $822 million.
As news of the merger was announced mid-morning US East Coast time,
Ascend's shares dipped slightly, down to $43 15/16, following a
dive of more than $8 late last week, as rumors of a takeover of
Stratus, the fault tolerant computer vendor, started to gather pace.
Many experts last week dismissed the merger rumors, noting that Ascend
had been involved in merger rumors several times so far this year. In
the spring, Newsbytes notes, stories were swirling that Lucent was
ready to merge with the company, but nothing transpired.
The rumors were fueled by the cash rich nature of Ascend's balance
sheets. Today's announcement values Stratus at around $822 million,
although this price includes around $150 million of cash and
securities, Newsbytes notes.
Ascend is almost certainly looking for access to Stratus'
telecommunications software and fault tolerant hardware, Newsbytes
notes. The company says that, if the merger goes ahead, Ascend may
well spin off the non-telecoms operations of Stratus to raise further
cash to offset the deal.
Newsbytes notes that Stratus is currently divided into four business
divisions: a telecoms carrier business division which includes the
SS7 switches; OSS software (operations systems software) and fault
tolerant platform; an enterprise computer business unit; and two
business operations comprised of financial and enterprise software
(TCAM and S2).
Ascend has said these non-telecom businesses will be set up as
separate subsidiaries which Ascend will divest before the end of this
year -- assuming the deal is approved by the relevant regulatory
bodies.
The plan is that, armed with Stratus' SS7 switches, OSS software and
fault tolerant platform, Ascend will be able to immediately offer
products to network service providers and carriers which will allow
for the integration of voice and data networks.
This, Newsbytes notes, will enable network service providers to
offload data and traffic from traditional voice switches, realize new
revenue generating services, and reduce the operating costs for their
network.
Mory Ejabat, Ascend's president, described the deal as a major win-win
one for customers and shareholders alike.
"This combination offers a new architecture for telephony networks,
leapfrogging the competition by several years. Our products, combined
with Stratus' SS7 switches, OSS software and fault tolerant platform,
allow network service providers a cost effective, reliable and
transparent means to relieve congestion," he said.
In parallel with this, he went on to say, the combined product range
will allow customers to reduce their operating costs on the public
switched telephone network (PSTN), as well as support the integration
of voice, fax and data traffic networks through multi service ATM
(asynchronous transfer mode) switches, and provide new services to end
users such as Internet telephony (fax and voice over Internet Protocol),
using remote access switches.
"The rapid growth of the Internet has increased data traffic and
strained the PSTN, forcing carriers to constantly expand their telecom
backbones," he said.
"In addition, deregulation is encouraging large service providers
around the world to deploy networks that will support the integration
of voice, video, and data. Stratus' state-of-the-art technology enables
the universe of fixed wireline carriers -- including the Baby Bells,
long distance providers, alternative local, alternative long distance
providers, and Internet service providers -- to respond to this
rapidly changing telecommunications environment," he said.
According to Ejabat, in addition to the technology, new products and
increased market share in this rapidly growing area, the combination
strengthens the firm's relationship with its existing partners, such
as NEC and Lucent.
"The transaction also opens up a $10 billion new market opportunity
for Ascend's products now served almost exclusively by traditional
telecom equipment suppliers," he said.
Bruce Sachs, Stratus' president and chief executive officer (CEO),
said that the two firms will be able to offer carriers true
intelligence for their telephony networks.
If the deal goes through, Ejabat will remain president and CEO, with
Sachs becoming executive vice president and general manager. The
transaction is expected to close in the fourth quarter of this year.
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