NEW YORK (Dow Jones)--Ascend Communications Inc. (ASND) shares rose in a
sharply lower market as takeover rumors - which have been swirling around the stock
for months - surfaced again.
Lucent Technologies Inc. (LU), which has been repeatedly reported as
interested in Ascend, was again named as a potential suitor Thursday.
Lucent's primary focus is on providing telecommunications equipment to carrier
customers like phone companies, but Lucent is expanding its business to sell equipment
that can also handle data traffic to these same carrier customers.
Many analysts expect the AT&T spinoff to make a major acquisition of a data
networking company once it is free to do pooling-of-interest deals in October and many
see Ascend as a likely target.
Sanford C. Bernstein & Co. analyst Paul Sagawa noted that Ascend could be attractive
to Lucent since it is the "clear leader" in selling data-networking equipment to carrier
customers. Ascend makes frame-relay switching and asynchronous transfer mode, or
ATM, equipment, as well as remote-access equipment.
A new name, Cisco Systems Inc. (CSCO), also popped up in rumors as a potential
suitor for Ascend Thursday. While Cisco is already a giant in the data-networking
equipment business, it sells mostly to enterprise - that is, corporate - customers. Sagawa
said Cisco might see Ascend as a way to expand its presence beyond the local area
networking market to increase its push into the wide area carrier market.
The analyst added, however, that an acquisition of Ascend would represent an
admission by Cisco that its own efforts to expand into the carrier market - particularly
through its acquisition of Stratacom, which makes frame relay and ATM switches for
the wide area market - have fallen short.
In addition, Sagawa noted, a merger of Cisco and Ascend could raise antitrust concerns
since the combined company would likely control about 45% of the ATM frame relay
market and over 50% of the remote access market.
Lucent and Cisco declined comment. Eric Warren, Ascend's public relations director,
said the company intends to remain independent, but would have to consider any
takeover offers it receives.
Ascend's shares were up 3/4, or 1.8%, at 42 3/4; earlier they were as high as 44 7/8.
Nasdaq volume was 10.2 million shares compared with an average daily trading volume
of 6.9 million. Sanford Bernstein analyst Sagawa said he believes a bidding war for
Ascend is
not out of the question, and estimates Ascend could be worth $70 a share in a takeover.
He noted that Ascend is trading at between 20 and 30 times 1999 earnings estimates -
it is at about 22 times his 1999 estimate of $1.89 a share, and about 25 times the Street
consensus of $1.67 - and is likely to show year-over-year earnings growth of about
40% in 1999.
By contrast, Cisco is trading at about 35 times 1999 earnings and is expected to show
earnings growth of only about 25% next year.
Ascend spokesman Warren said he believes the company's shares could also be up
Thursday on positive comments from several analysts.
CIBC Oppenheimer Corp. analyst Martin Pyykkonen, for one, earlier upgraded the
stock to strong buy from buy, saying Ascend has good earnings visibility in this choppy
market.
He noted that this is because the company's carrier customers are unlikely to cut back
spending on the type of wide area ATM equipment that Ascend supplies since they are
facing a lot of pressure to build up broadband services.
Pyykkonen added that company is also in a strong position since it has a broad
spectrum of customers, including local carriers, long-distance providers and competitive
local exchange carriers.
The takeover rumors surrounding Ascend came the same day that 3Com Corp.'s
(COMS) shares were up on renewed rumors that the company could be a takeover
target for Intel Corp. (INTC).
The rumors seemed to seem to lift a few other stocks in the data networking sector on a
day when the broader market was sharply lower.
Cabletron Systems Inc. (CS) shares were up 5/16, or 3.9%, at 8 1/4.
Shares of some other data networking companies that are seen as potential targets also
rose. Fore Systems Inc.'s (FORE) shares were up 7/8, or 4.8%, at 19, for instance.
Wall Street and Silicon Valley are expecting to see a wave of takeovers in the industry,
particularly as telecommunications equipment companies seek to get into the data
networking business through acquisitions.
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