France's Alcatel Set To Buy Internet-Gear Firm Xylan For $2 billion
Dow Jones Online News, Tuesday, March 02, 1999 at 00:32
(Published on Monday, March 01, 1999 at 21:29)
By Anita Raghavan and Gautam Naik, Staff Reporters of The Wall Street
Journal
LONDON -- French telecommunications company Alcatel SA is expected to
acquire Xylan Corp. of Calabasas, Calif., for nearly $2 billion,
according to people familiar with the situation.
The purchase, which could be announced as soon as Tuesday, would
marry Alcatel's strength as a major equipment supplier to U.S. local and
long-distance telephone companies with Xylan's Internet-equipment
business. Xylan makes the increasingly important switches and other
routing gear that companies use to build high-speed data networks.
Though precise details of the deal couldn't be learned, one person
close to the companies said Alcatel will acquire Xylan for more than $35
a share -- a premium of more than 50% over Xylan's stock price before
acquisition rumors recently began to drive the price higher. Xylan's
stock was up more than 40% in February, a sharp rebound from September,
when it was trading for under $10 a share.
In Nasdaq Stock Market trading Monday, Xylan's stock climbed 43.75
cents to $26.9375. Alcatel's American depositary receipts fell 31.25
cents, to $21.375, in New York Stock Exchange composite trading.
A spokesman for Alcatel declined to comment last night, saying: "We
never comment on rumors and speculation as a matter of company policy."
A spokesman for Xylan declined to comment.
Older, established companies such as Alcatel are being driven to buy
Internet-gear makers such as Xylan, because the volume of data traffic
zipping around the world is far outstripping old-fashioned voice
telephone calls. Analysts believe voice calls will account for less than
1% of all telecommunications traffic within a few years, making it
crucial for companies such as Alcatel to get a solid foothold in the new
market.
Indeed, the move to buy Xylan comes as other
telecommunications-equipment companies are rushing to enter or expand in
the field, and news of the acquisition is likely to boost the share
price of other Internet-gear makers. Analysts say Telefon AB L.M.
Ericsson of Sweden, Northern Telecom Ltd. of Brampton, Ontario, and
Siemens AG of Germany may also be on the prowl for smaller Internet
equipment makers.
Alcatel's fortunes, however, sagged significantly in mid-September
when the company shocked the market with a profit warning. Its stock was
pummeled, but has since recovered slightly.
The latest move represents Alcatel's continuing foray into the U.S.
market, which is its biggest, contributing about 20% of sales. That is a
big change from a few years ago, when it sold most of its products in
France.
Last summer, Alcatel surprised investors by acquiring DSC, one of the
biggest providers of telephone equipment to the Baby Bells, for about $4
billion. Alcatel traditionally had been strong in supplying transmission
equipment to long-distance operators, so the DSC acquisition helped it
significantly broaden its footprint in the market. More recently,
Alcatel acquired a small Spokane, Wash., Internet equipment maker called
Packet Engines.
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