Sonny ---Gives a broader perspective of the deal especially the overseas part---Lucent Technologies Inc.
Dow Jones Newswires -- January 13, 1999
Lucent Chrmn Sees Ascend Deal Adding 2% To 4% To
2000 EPS
By Shawn Young
NEW YORK (Dow Jones)--Having finally feasted at the megamerger banquet by signing a $20
billion agreement to buy Ascend Communications Inc. (ASND), Lucent Technologies Inc. (LU) is
confident it chose a rich meal.
Buying the Alameda, Calif., data-networking company isn't expected to dilute Lucent's fiscal 1999
earnings and it should add 2% to 4% to Lucent's anticipated bottom line for fiscal 2000, said
Chairman and Chief Executive Richard McGinn.
"It's amazing how few big technology deals get done without dilution," McGinn told Dow Jones. He
said he is comfortable with the prevailing range of earnings estimates for 1999 and 2000.
The consensus of analysts surveyed by First Call Inc. is that Lucent, Murray Hill, N.J., will earn
$2.16 in fiscal 1999 and $2.62 in fiscal 2000.
Lucent, of Murray Hill, N.J., had revenue of $30.1 billion in fiscal 1998. Ascend, which is on a
calendar year, had revenue of $1 billion in the first nine months of 1998.
The combined company should see revenue growth accelerate as it makes a joint attack on the
expanding market for telecommunications and data equipment, company officials said.
In particular, Ascend gets 30% to 35% of its revenue from overseas, where Lucent has been looking
to expand.
The combined company will be a strong competitor to data-networking giant Cisco Systems Inc.
(CSCO) and will continue to fight its largest telecommunications equipment-making rival, Northern
Telecom Ltd. (NT) of Canada.
But it will not base its competitive strategy on price, said Dan Stanzione, Lucent's chief operating
officer and president of Bell Labs.
"We're in a very price competitive industry," Stanzione said, but he said Lucent's main emphasis will
continue to be on quality, reliability and overall value rather than just price.
Stanzione will be the head of a new broadband networks Group Lucent is forming in conjunction with
the merger.
Talks between Lucent and Ascend began in earnest last fall, said McGinn of Lucent. He said he had
met Ascend President and Chief Executive Mory Ejabat last summer and the two found they had
much in common.
Beyond that, Ejabat said, much of the impetus for the union came from customers.
"It was a no-brainer," he said.
Ejabat will stay with the combined company through the transition. After that, he said: "I'll go to the
beach for a while."
The topic of price wasn't broached until December, said Donald Peterson, Lucent's chief financial
officer. Rumors that the companies clashed over price early on aren't true, he said.
In the end, Lucent paid a premium to Ascend's pre-deal market value of about $17 billion.
"This is a premium price for a premium product," Peterson said.
Company officials said the deal will result in cost savings for the combined company as duplicate
functions like order-taking, treasury offices and investor relations are combined and streamlined.
However, McGinn said, cost savings aren't the underpinning of the deal.
"That's not the issue, the issue is growth," McGinn said. "The deal stands on its merits."
Lucent will continue to look for compelling deals and is likely to keeping adding to its list of strategic
acquisitions.
Lucent has penned 11 buyouts in the data networking arena so far. Ascend is its first true
megamerger.
"You'll continue to see us invest organically and acquire," McGinn said. Lucent is likely to concentrate
its investments and purchases in the data networking, software, wireless and fiber-optic networking
segments of its market, which are the fastest-growing areas.
While the company will pursue deals, its larger efforts will be "gated" by the management issues
involved in large deals, Peterson said. The company won't take on more than it can integrate at one
time, he said.
Most of its acquisitions to date have been small and medium-size, so careful integration doesn't mean
Lucent isn't on the lookout for desirable acquisitions.
"I'm sure there will be some in 1999," Peterson said.
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