Another version of the same rumor:
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January 11, 1999 01:04
Lucent in talks to buy Ascend - industry sources
By Jessica Hall
NEW YORK, Jan 11 (Reuters) - Telecommunications equipment maker Lucent Technologies Inc. is in talks to buy computer networking firm Ascend Communications Inc. , for more than $16 billion, industry sources said on Sunday, a deal that could challenge networking leader Cisco Systems Inc.
Both New Jersey-based Lucent, the world's biggest maker of telecommunications equipment, and Ascend, the fourth-biggest maker of computer networking gear, declined to comment.
The companies were expected to meet on Tuesday to discuss details of a deal and an announcement could be made as early as Wednesday, although the timing could change, industry sources and analysts said. One industry analyst said Lucent could pay more than $80 a share in stock for Ascend.
Under the deal, Lucent -- valued at about $151.6 billion -- would buy Ascend, which has a market value of about $15.5 billion based on its Friday closing price of $71.44 a share on the Nasdaq Stock Market. Lucent shares closed at $115.25 in New York Stock Exchange composite trade on Friday.
"They've been considering a deal for months. It was just a matter of waiting for Lucent's stock to hit a level where they could pull it off," one industry source said. "It could still hit a snag if they can't find a price that is worthwhile enough for Ascend, but not too dilutive for Lucent."
If the long-rumored acquisition comes to pass, it would bolster Lucent's position as it confronts the converging markets of traditional voice networks and high-speed data networks, analysts said. The growing convergence has meant Lucent and Ascend, headquartered in Alameda, California, increasingly compete against each other.
Lucent and Ascend have been working closely together for months but are still conducting due-diligence reviews to evaluate a potential deal, industry sources who declined to be identified, said.
The combined companies would pose a greater threat to Cisco, currently Ascend's chief rival. Lucent would gain access to sophisticated Ascend technology while Lucent's greater financial resources and large sales force would put more muscle behind Ascend's products.
Ascend now has a lead in the phone market over Cisco because it has developed a switch the shunts vast amounts of data on phone networks and analysts believe Cisco will not be able to match the technology until the middle of the year.
Even so, sources close to Ascend on Sunday night reiterated that the company's intends to remain independent as it competes against Cisco and 3Com Corp., the second-biggest maker of networking gear.
Lucent, based in Murray Hill, New Jersey, is the largest maker of equipment for telecommunications companies and has made several small acquisitions to move into the data networking business. The company, which also houses the prestigious Bell Labs, bought Yurie Systems Inc. for $1 billion last May to gain products similar to Ascend's.
Lucent, spun-off from AT&T Corp. in 1996, has been widely expected to make a large acquisition since October, when it was freed from a two-year restriction that prevented it from pursuing acquisitions using the pooling-of-interests accounting method. Purchases made using pooling-of-interests do not hurt earnings as much as a straight purchase, because there is no goodwill that must be written off against future profits.
Increasingly, so-called old-world telecommunications companies such as Lucent and Canada's Nortel Networks are competing with computer networking companies such as Cisco.
As voice, data and video are carried over one network instead of previously separate ones, it makes more sense to switch telephone networks based on older analog technology to digital networks that package voice and video into digital packets and shunt them over newer computers.
Analysts said the changes during the past three years in the telecommunications industry following deregulation in 1996, coupled with the rapid advances in technology and computer networking, make it inevitable that the industries will meld into one.
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