Newbridge sells stake in ACC
Gets $171-million in deal with Ericsson that
seems to counter firm's new strategy
Thursday, September 10, 1998
By Mark Evans
Technology Reporter
Globe&Mail
Newbridge Networks Corp. sold its 60-per-cent stake in Advanced Computers Communications Corp. yesterday to L.M.
Ericsson Telephone Co. Inc. for $171-million (U.S.), a move that seems to run counter to Newbridge's new strategy of increasing
revenue by offering a wider variety of equipment for communications networks.
Robert MacLellan, an analyst with Kearns Capital Ltd. in Toronto, said selling the ACC stake is a move in the wrong direction.
"It means the firm is taking a step back away from remote access and high-speed routing and I don't see that as a positive," he said.
In a conference call, Ericsson said ACC has annual revenue of about $50-million and has the potential to increase that by 100 per cent
a year.
But Terry Matthews, Newbridge's chairman and chief executive officer, said it's the right time to sell the company's investment in ACC,
even though the market in which it operates is worth about $1.7-billion and growing 40 per cent a year.
"Everything has to be a business decision and we believe this decision is the right one," he said.
The deal comes a year after Newbridge reportedly put together an investment syndicate to prepare ACC for an initial public offering or
sell its stake.
"It was certainly the impression to many investment bankers, ACC was getting ready for an IPO and had done so more than once,"
said an analyst, who asked not to be identified. He added that Newbridge got a pretty good price for its ACC stake, about six times
revenue.
In June, Newbridge named Alan Lutz president and chief executive officer in a move to rejuvenate the company, which has struggled
amid competition from rivals such as Cisco Systems Inc. of San Jose, Calif. Mr. Lutz had been a senior executive with Compaq
Computer Corp.
A challenge for Kanata, Ont.-based Newbridge is to increase sales of its newer asynchronous transfer mode equipment, which helps
move large amounts of voice and other data across telephone networks, amid slowing sales of its older products.
Mr. Lutz aims to triple Newbridge's sales to $5-billion by 2002 from $1.6-billion in fiscal 1998 by expanding sales beyond its
traditional customer base of telephone companies.
Ericsson, the world's leading wireless equipment maker, paid $285-million for all of ACC to increase its presence in the fast-growing
market of moving data over networks. ACC's products help companies create high-speed networks to connect different locations using
telephone systems and the Internet.
Ericsson's purchase of Santa Barbara, Calif.-based ACC is part of its growth strategy for the data market, which is expanding rapidly
as the Internet becomes more popular with companies that want to move information and do electronic commerce.
"ACC is very strong in the routing and remote access Internet protocol area and we already use that technology within Ericsson," said
Anders Igel, an executive vice-president with Ericsson. "This is part of our string of pearls acquisition strategy to acquire small to
medium-sized companies to support our presence in data networking."
Newbridge will continue to sell ACC's remote access products, marketing them under the MainStreetExpress 36100 brand, and do
joint research with Ericsson.
Last week, Newbridge said it will buy 40 per cent of one of its affiliates, Castleton Systems Corp., for an undisclosed amount.
Newbridge and Mr. Matthews each already own a 30-per-cent stake in Vancouver-based Castleton.
Castleton and ACC were part of Newbridge's affiliate program. Rather than lose entrepreneurial employees, Newbridge and Mr.
Matthews make minority investments in these employees' new ventures and provide access to Newbridge's research, sales and
administrative facilities.
There are currently 13 companies within the affiliate family.
Mr. Matthews said the sale of ACC doesn't represent a change in Newbridge's affiliate strategy.
"We do what makes business sense. Newbridge continues to be very active in starting up companies that are complementary, so the
affiliate program is under full steam." |
