Wednesday January 13 2:15 PM ET
Lucent's Ascend Buy Changes Network Landscape
By Jessica Hall
NEW YORK (Reuters) - Lucent Technologies Inc. (NYSE:LU - news)'s long-awaited deal to buy Ascend Communications Inc. (Nasdaq:ASND - news) for about $18.5 billion will make the world's biggest maker of telephone gear a major force in the fast-growing business of building computer data networks.
Industry analysts said that the deal announced Wednesday will give Lucent access to Ascend's sophisticated data network technology and make it the leading rival of Cisco Systems Inc. (Nasdaq:CSCO - news), the biggest maker of data networking gear.
''I think anyone right now would be afraid of Lucent,'' said Christine Heckart, an analyst at industry consulting firm Telechoice. ''Lucent was very much a sleeping giant. Lucent is scary because they obviously aren't sleeping anymore.''
Lucent has made a series of small acquisitions since it was spun off from AT&T Corp. (NYSE:T - news) in 1996, including 11 deals in data networking. The purchase of Ascend would be its largest to date and its boldest move into the data market.
The company wanted Ascend, the fourth-biggest maker of computer network gear, mainly for its technology that allows the simultaneous transmission of voice, video and data. Buying Ascend was easier and faster than developing that technology on its own, analysts said.
''Lucent came to realize the opportunity was here and now, they needed the product today. The Ascend acquisition answers that,'' said Greg Geiling, an analyst at J.P Morgan.
The networking gear is used by telephone companies as well as corporations and governments to link computers that manage huge banks of data, and is also used to build and maintain the Internet.
''This merger makes our portfolio broader and more powerful, and gives us the edge as we develop the next generation of networks,'' Lucent Chairman Rich McGinn said in a statement. He also said the Ascend deal was unlikely to be Lucent's last.
''We think there are strategic opportunities available, as long as they make financial sense,'' he said in an interview with cable television station CNBC.
Even with Ascend, Lucent will still be weak in international markets and in providing network equipment to large corporations, some analysts said.
Under the deal, each share of Ascend will be converted into 0.825 shares of Lucent, valuing Ascend at $85.70 a share, or about $18.5 billion, based Wednesday's market prices. Based on Lucent's closing price of $107.875 Tuesday, the deal is worth about $20 billion.
Ascend stock jumped $5.19 to $80.125 on Nasdaq while Lucent fell $4 to $103.875 on the New York Stock Exchange at midday.
Murray Hill, N.J.-based Lucent expects the deal to be neutral to earnings in fiscal 1999 and boost earnings in 2000, the first full year of combined operation. The deal is subject to approval by shareholders of Ascend, which is based in Alameda, Calif., and regulators.
The announcement comes two days after Lucent said it agreed to buy closely held Kenan Systems Corp., a billing software company, for $1.4 billion.
The Lucent-Ascend deal could spark further consolidation in the communications equipment industry, analysts said. Last year France's Alcatel Alsthom bought DSC Communications Corp. and Northern Telecom Ltd (NYSE:NT - news). acquired Bay Networks.
Separately, Spanish telecom giant Telefonica said it sold a 12.2 percent stake in equipment maker Amper SA to Lucent for about $47.6 million. (Jessica Hall, New York newsroom 212 859-1729)
Regards
Neil |
