Lucent in talks to buy Ascend - industry sources
08:42 a.m. Jan 11, 1999 Eastern
NEW YORK (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 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 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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