Ericsson weighs Newbridge bid
Swedish firm 'doing due dilligence' on embattled company;
interest could spark takeover race with Alcatel
SIMON TUCK
Technology Reporter
globe and mail
Friday, November 12, 1999
Ottawa -- L. M. Ericsson Telephone Co. Inc. is weighing a bid for Newbridge Networks Corp., which could spark a race with Alcatel SA for the embattled
company, The Globe and Mail has learned.
Newbridge has told some of its top executives to clear their schedules to be ready for any sudden developments, a source close to the company said yesterday.
Ericsson of Sweden, which discussed a takeover deal with Newbridge during the summer, is "doing due dilligence" on the embattled Kanata, Ont.-based
company, the source said.
"I'm absolutely sure they're shopping," the source said. "There's no question."
On Tuesday, the Globe reported that Alcatel of Paris is actively considering a takeover bid for Newbridge.
Many top Newbridge officials gathered yesterday in the Ottawa area for the funeral of the wife of a former colleague. Some have been told to clear their
schedules for the next couple of days in case there's a major development, the source said.
Analysts who follow Newbridge say Ericsson, which has a gaping product hole in its data communications equipment portfolio, is a likely suitor for Newbridge.
Despite its recent woes, the Canadian company's flagship product -- asynchronous transfer mode (ATM) -- is a well-respected technology and a market leader
that could cover the gap at Ericsson.
"They might look at ATM and say it's the Band-Aid they need," said one Toronto analyst.
Duncan Stewart, a portfolio manager at Tera Capital Corp. in Toronto, said Ericsson's interest in Newbridge makes sense. "I can see that," he said. "They're a
logical player."
Ericsson is the second European telecommunications company considering making a bid for Newbridge, which has been hit in recent months with disappointing
sales and a share price plunge. Alcatel, known for favouring low-cost acquisitions, is also taking a look at Newbridge and some analysts believe that up to three
telecommunications giants could be in the hunt.
Other possible bidders include Marconi PLC of Britain, Lisle, Ill.-based Tellabs, Nokia SA of Finland and Siemens AG of Munich -- Newbridge's most
important partner. None of these players want to be the one left standing without a partner -- or comparable, home-grown technology -- when the market turns
to high-speed wireless infrastructure, which requires ATM or rival Internet Protocol technology as a pillar.
But many on Bay Street say Alcatel and Ericsson, seen as desperate to shore up its data communications portfolio, are the most likely candidates to pursue
Newbridge.
Officials from Alcatel and Newbridge have said they don't comment on speculation. An Ericsson spokesman couldn't be reached for comment yesterday.
The renewed takeover talk involving Newbridge has buoyed the company's slumping stock, which has gained $3.88 or 16.9 per cent this week.
The market to buy Newbridge is being fuelled in part by the recent convergence of the telecommunications industry's data and voice flanks. Nortel Networks
Corp. of Brampton, Ont., bought Bay Networks Inc. of Santa Clara, Calif., in June, 1998, for $6.7-billion (U.S.) and Lucent Technologies Inc. of Murray Hill,
N.J., paid about $20-billion for Ascend Communications Inc. of Alameda, Calif.
There are two imposing barriers, however, to any deal involving Newbridge. The primary one is Terence Matthews, the company's founder, chairman, and chief
executive officer, who owns about 22 per cent of Newbridge's stock and could effectively block any deal. Mr. Matthews has said he wouldn't turn down a good
offer but analysts believe he doesn't want to sell.
The other obstacle is Newbridge's product portfolio. ATM, its flagship switching technology, is the pearl being eyed by potential suitors. Newbridge's
second-leading revenue stream, however -- its time-division multiplexing (TDM) product line -- produces steady sales but is an older technology that is viewed as
baggage that the larger voice telecommunications players don't want to pay for. |
