By Rebecca Blumenstein and Lee Gomes, Staff Reporters of The Wall Street
Journal
Ascend Communications Inc.'s board plans to meet today to consider a
takeover offer from Lucent Technologies Inc., in what would be the
biggest acquisition to date in the computer-networking industry,
according to industry executives.
Ascend, Alameda, Calif., received a preliminary offer from Lucent,
Murray Hill, N.J., nearly two weeks ago, these people said. A more
formal offer will be considered today.
Ascend's stock rose $5.25, or 7.3%, to $76.6875, on heavy volume on
the Nasdaq Stock Market after a report of the talks appeared in the
Financial Times. Lucent's stock declined $2.3125 to $112.9375 in New
York Stock Exchange composite trading.
Terms of the possible acquisition, which could be announced as early
as tomorrow, weren't available, but would likely exceed Ascend's market
value of about $16 billion. Ascend and Lucent declined to comment.
Separately, Lucent agreed to acquire closely held Kenan Systems Corp.
for $1.45 billion in a bid to develop more sophisticated billing
software for its customers. The move will enable Lucent to better serve
its big telecommunications clients by helping them develop single
billing systems capable of handling various communications technologies,
including wireless service and the Internet.
Lucent's bid for Ascend is hardly a surprise, because the two
companies have been the subject of widespread merger speculation for
more than a year and a half. Lucent, which was spun off from AT&T Corp.
in 1996 and includes Bell Laboratories, is one of the oldest suppliers
of the equipment used by telephone companies. But Lucent needs Ascend's
data-networking technology to keep up with changes that the Internet is
creating in telecommunications. Eventually, all voice, video and data
communications are expected to take place over Internet-style networks.
A person close to the discussions said that Lucent and Ascend have
been holding talks for the past 18 months to make sure there was a
proper fit between the two companies. "At the start of the new year,
people decided that it was time to move ahead," said this person.
Richard McGinn, chief executive officer of Lucent, was scheduled to
be in the San Francisco area tonight to speak to a local civic group. He
wasn't slated to appear before the Ascend board. Much of the proposed
acquisition has been brokered between Mr. McGinn and Mory Ejabat, chief
executive of Ascend, say people close to the situation.
Analysts say Lucent needs Ascend to compete against rivals such as
Cisco Systems Inc., San Jose, Calif., that are already helping
telecommunications companies make the leap from voice to data
transmission. "This will complete Lucent's transition from a voice
company to a complete data-networking company," said Roger Wery, vice
president in charge of communications practices for Renaissance
Worldwide, a consulting firm.
Lucent's purchase of little-known Kenan, Cambridge, Mass., is a
straight exchange of 12.88 million common shares of Lucent for Kenan's
total equity. Lucent has seen its market value surge to more than $145
billion since it was spun off in 1996.
Kenan's purchase marks the first time Lucent has bought a business
using a "pooling-of-interests" accounting method. Until October, Lucent
was prohibited from doing so under the terms of its spinoff. The
accounting method reduces the impact of acquisitions on earnings by
allowing companies to avoid write-offs from goodwill.
Lucent officials acknowledged the high growth rates in both customer
billing and data networking. "We said we were going to focus on the
high-growth business segments," said Dan Stanzione, Lucent's executive
vice president and chief operating officer and president of Bell Labs.
Lucent said the purchase of Kenan will add to its earnings in the year
ending Sept. 30, 1999, by three or four cents a share.
Lucent officials said they hoped to use Kenan to grow more
aggressively outside the U.S. Under terms of the deal, Kenan and its 750
employees will become a subsidiary of Lucent. Kenan Sahin, Kenan's
president, will continue as president of the subsidiary and will become
a Lucent vice president for software technology at Bell Labs.
Mr. Sahin owns all of the company's shares. Under the pooling
arrangement, however, he can't share any of the deal's proceeds with his
staff. He said he will use a bulk of the proceeds to form a nonprofit
foundation to create software and distribute software to academia.
Lance Boxer, who heads Lucent's Communications Software Group, said
that as the telecommunications business increasingly becomes a
commodity, software will be more valuable. "It's not the fiber, it's the
functionality that sits on the end of it," said Mr. Boxer.
Copyright (c) 1999 Dow Jones & Company, Inc.
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