Friday November 12, 7:10 pm Eastern Time
FOCUS-Buyout talk keeps pumping up Newbridge stock
(Recasts, adds Newbridge and analysts' comments. All figures in U.S. dollars unless noted)
By Lydia Zajc
TORONTO, Nov 12 (Reuters) - Takeover talk continued to pump up the stock of Newbridge Networks Corp. (Toronto:NNC.TO - news) (NYSE:NN - news) on Friday as prospective buyers mulled over the value of the struggling Canadian computer networking company, analysts said.
Shares of Newbridge, toiling to recover from six profit warnings in the past 10 quarters, soared C$4.60 -- a whopping 17.1 percent -- to close the day at C$31.40 on the Toronto Stock Exchange on volume of 4.5 million shares.
In New York the company's stock rose 3 to 21-1/4.
''I think that a number of parties are interested,'' said Rob MacLellan, analyst at CT Securities. ''But we're a long step away from an offer being offered and accepted.''
The company has also said it is not in takeover talks with French telecoms equipment maker Alcatel Alsthom , another name in recent news, although it has been exploring alliance possibilities, MacLellan added.
The Toronto Globe and Mail newspaper, citing sources close to the company, reported on Friday that Swedish telecoms group Telefonaktiebolaget LM Ericsson was conducting due diligence on Newbridge ahead of a possible bid for the maker of asynchronous transfer mode switches -- equipment that sends multimedia data zipping across networks at high speeds.
Newbridge spokesman John Lawlor told Reuters that the company, based near Ottawa, had chatted with Ericsson periodically over the past year about business opportunities, but not about a buyout.
''We're not in talks with Ericsson about a possible takeover,'' Lawlor said.
Nor is Newbridge in takeover talks with French telecoms equipment maker Alcatel Alsthom , another name mentioned recently, although they have been exploring original equipment making alliances, Lawlor added. ''We are not in talks with any party regarding a possible takeover of Newbridge,'' he said.
Asked whether Newbridge would ever consider putting itself on the auction block, Lawlor said: ''Everything has a price.''
''One can never say never,'' he added.
Ericsson, the world's largest maker of mobile communications systems, said it would not comment on media reports that it would buy Newbridge.
''We can't comment on individual speculation,'' Ericsson spokesman Lars Ostlund told Reuters. ''What we've said all along is that we have an acquisition strategy of small- to medium-size companies,'' he said.
Over the past few weeks companies mentioned as possible purchasers have included Ericsson, Alcatel, British systems group Marconi Plc (quote from Yahoo! UK & Ireland: GEC.L), Illinois-based telecommunications equipment maker Tellabs Inc. (NasdaqNM:TLAB - news), Japan's Fujitsu Ltd. and long-time Newbridge ally Siemens AG from Germany.
Volume in Newbridge options traded in Chicago exploded on Friday.
Rumors that Newbridge will be bought are not new, but have gathered steam recently as its stock recovers from a 12-month low of C$20.60.
Friday was no different, said analyst Paul Sagawa at Sanford Bernstein in New York. ''From a logical perspective, Ericsson, Alcatel, Siemens would have most reason to want it,'' Sagawa said.
MacLellan agreed, pointing out that the three are lagging in North American penetration in Newbridge's market, and Siemens already has an advantage through its manufacturing and sales alliances with the company.
Sagawa said the company has problems but that its asynchronous transfer mode technology is still critical at this time.
Newbridge founder and head Terry Matthews, who holds a significant stake in his brainchild, may have to change his mind, Sagawa said. ''If Terry Matthews is a realist, he must understand that he must sell the company now.''
MacLellan, who has a 12-month price target of $20 on the stock, anticipates that any attempt to mount a takeover bid would range in price from $24 to $25 a share.
''We think the odds are low, of being acquired,'' MacLellan added. Although executives have a fiduciary duty to examine every bid received, the company's management is reluctant to let the company go at these share levels, he said.
''There are no discussions right now, but that could change,'' MacLellan added.
''The odds are better than they've ever been, but it's not a slam dunk.''
Newbridge holds its second-quarter results conference call on November 18.
Newbridge may be in discussion with Alcatel to form a tighter relationship, said John Wilson, analyst at Warburg, Dillon Read in Toronto.
''One possibility is an arrangement with Alcatel similar to the one they originally had with Siemens -- because that one has gotten a little stale,'' he said. ($1=$1.46 Canadian)
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