Newbridge sells stake in ACC for
$285 million U.S.
Deal might foreshadow deepening alliance
with Ericsson
James Bagnall
The Ottawa Citizen
Newbridge Networks Corp. is unloading its 60-per-cent stake in
California-based Advanced Computer Communications Corp. for a healthy
$285 million U.S.
The move will substantially bolster Newbridge's cash position and might lead
to a broader strategic alliance with LM Ericsson, the Swedish
telecommunications giant that is buying ACC.
"Newbridge got a very nice price for this transaction," said Paul Silverstein, an
analyst with New York-based
BancAmerica Robertson Stephens. "It can now invest the cash in
higher-return businesses."
The relatively high price paid by Ericsson is a measure of the importance the
Swedish firm attaches to ACC's data networking technology as a catalyst for
new growth. Ericsson is already a global powerhouse. At the close of trading
yesterday, it had a market capitalization of $40.8 billion U.S, compared with
$33.4 billion U.S. for Northern Telecom Ltd. and $3.7 billion U.S. for
Newbridge.
But Ericsson's overwhelming strength is in wireless communications systems.
Ericsson executive vice-president Anders Igel said yesterday his firm intends
to use ACC's expertise in Internet-based networks to build integrated
voice-and-data systems for large corporations.
Mr. Igel added that Ericsson will also adapt its flagship telephone switching
products to incorporate ACC's Internet know-how.
The interesting part of all this is that Newbridge is still very much in the
picture, even though it has sold its entire stake in ACC. (Ericsson is buying the
remaining 40 per cent of ACC from other shareholders.) Newbridge will
continue to sell ACC's remote access routers and to participate in some of its
research and development activity.
Indeed, Newbridge chairman Terence Matthews hinted very strongly that
other deals involving Ericsson could soon be in evidence, including ones that
would involve "working together with ATM."
ATM, short for asychronous transfer mode, is a technology that lies at the
heart of Newbridge's core product line.
Ericsson has already agreed to support Newbridge's preferred technical
standards for delivering Internet signals over ATM.
The ACC deal "represents quite a strengthening of our relationship with
Ericsson," Mr. Matthews said during an hour-long conference call. "The
chemistry is very good with the Ericsson company."
When queried about whether the new relationship with Ericsson will take
away from Newbridge's longstanding alliance with Siemens AG of Munich,
Mr. Matthews stressed the Siemens relationship remains "good."
Siemens remains a major sales channel for Newbridge products and is helping
Newbridge to co-develop a next-generation ATM switch.
Both Siemens and Ericsson have been cited as potential buyers of Newbridge
in a rapidly consolidating network equipment industry. For the moment at
least, Newbridge is pursuing a strategy of developing alliances, rather than
positioning itself for immediate sale.
Either way now, it has options.
The sale of its stake in ACC marks the first time Newbridge has sold one of
its nearly two-dozen affiliates outright, but then ACC has always been
something of an anomaly. The $50-million U.S.-a-year company is one of
very few firms in which Newbridge holds a majority stake. It was also the first
affiliate to be based outside Canada.
Newbridge began acquiring equity in ACC in the early 1990s, at least in part
to gain access to ACC's data networking technology. At the time, Newbridge
was developing a line of data networking products, sold now to corporations
under the Vivid brand name.
Interestingly, at about the same time Newbridge was picking up its first shares
in ACC, it had an opportunity to buy at least a piece of Wellfleet
Communications --Ethe company that is now serving as the Boston-based
centre of expertise for Nortel's push into large-scale data networking.
Newbridge declined, but it hasn't done badly by ACC.
After all, the Vivid line is starting to show growth potential. And Newbridge
will reap a huge capital gain on the sale of its stake to Ericsson.
Just how much Newbridge will realize won't be clear until Newbridge reports
its second fiscal quarter in late November.
Newbridge shares closed yesterday at $32 on the Toronto Stock Exchange,
up 60 cents.
Ericsson closed at $22 7/8 in New York, down $1 5/8. |
