Shareholders Seek Injunction Against Lucent-Ascend Deal
January 14, 1999 11:28 AM
WASHINGTON -(Dow Jones)- A group of Ascend Communications Inc. shareholders filed suit Wednesday in a Delaware Chancery Court seeking a preliminary injunction against Lucent Technologies Inc.'s multibillion-dollar acquisition of the networking products company.
Lucent (LU) confirmed Wednesday that it is buying Ascend, paying in excess of $19 billion in stock in a move Lucent hopes will allow it to dominate the next generation of telecommunication networks. The deal, the biggest for Lucent sice it was spun off from AT&T Corp. (T) in 1996, is expected to be completed by June 30.
Further details about Wednesday's lawsuit weren't available.
The purchase will enable Lucent to sell its customers the sophisticated equipment necessary to handle the convergence of voice, Internet, data and video traffic on their networks. Lucent said it had fallen behind in that emerging arena.
Ascend is a market leader in high-speed data networking gear, a field that is expected to explode in coming years. As much as 70% of the traffic on the Internet passes through Ascend equipment at some point.
Lucent Chairman and Chief Executive Officer Rich McGinn said the purchase will enable Lucent to bring a wider array of data-networking products to market faster. This is a pivotal time for most telecom companies, since they must choose how they will update their networks to meet the demands created by new technologies, including the Internet.
Terms call for each share of Ascend to be converted into 0.825 share of Lucent. Based on Lucent's closing stock price Wednesday of $104.25, the pending acquisition is worth at least $18.92 billion, and values Ascend's shares (ASND) at $86. Early Thursday, Ascend rose $1.875 to $82.438. Lucent and Ascend declined to provide the number of fully diluted shares outstanding, suggesting the ultimate price will be slightly higher.
McGinn vowed that the acquisition of Ascend won't slow down Lucent's growth rates. Lucent, which has exceeded earnings expectations each quarter since going public, is expected to see its revenue grow by more than 18% to about $35 billion in fiscal 1999, ending Sept. 30. That excludes the purchase of Ascend. Lucent said the acquisition won't depress earnings during fiscal 1999, and will contribute to earnings in 2000.
Such Lucent rivals as Cisco Systems Inc. (CSCO), based in San Jose, Calif., and Northern Telecom Ltd. (NT), based in Toronto, said they viewed Lucent's purchase of Ascend as defensive. They also predicted that Lucent will need time to absorb Ascend's operations.
Meanwhile, Lucent said it is likely to keep 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.
Analysts expect second-tier players in the business to become acquisition targets. According to Nutmeg Securities analyst Andy Schopick, the list includes Fore Systems Inc. (FORE) and Xylan Corp. (XYLN). Although Newbridge Networks Corp. (NN) still has much of its business in older circuit-switched networks, the company's strong global presence could also make it an attractive target, Schopick said.
Cabletron System Inc. (CS), too, could get taken out, he believes, although it would mostly be interested in selling itself "out of desperation." The company has been fighting a losing battle for market share against Cisco and 3Com, and been coping with pricing pressure and a heavy presence in older, shared media hub technology.
There has also been quite a bit of speculation that 3Com Corp. (COMS) could be acquired, although Sanford C. Bernstein & Co. analyst Paul Sagawa noted that few suitors would want all of the company's divergent businesses. With products ranging from adapter cards and modems to routers to its Palm Pilot hand-held computing devices, 3Com could be split apart, many say. |
