CNN FINANCIAL:Acquisition expected by French telecom..at more than $7 billion
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Newbridge tempts Alcatel
ÿÿÿÿÿÿÿÿÿÿÿÿ Acquisition expected by French telecom
ÿÿÿÿÿÿÿÿÿÿÿÿ equipment maker, at more than $7 billion
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ By Staff Writer David Kleinbard
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ February 18, 2000: 6:06 p.m. ET
ÿÿÿÿÿÿÿÿÿÿÿÿÿ NEW YORK (CNNfn) - France's Alcatel SA is likely to announce a
ÿÿÿÿÿÿÿÿÿÿÿÿÿ more than $7 billion agreement to acquire Canada's Newbridge
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Networks as early as next week, securities analysts who follow the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ two companies said.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿÿÿÿNewbridge (NN: Research, Estimates) is a telecommunications
ÿÿÿÿÿÿÿÿÿÿÿÿÿ equipment maker based in Kanata, Ontario, known for its strength
ÿÿÿÿÿÿÿÿÿÿÿÿÿ in making asynchronous transfer mode (ATM) switches. ATM
ÿÿÿÿÿÿÿÿÿÿÿÿÿ switches can integrate multiple types of traffic - including voice,
ÿÿÿÿÿÿÿÿÿÿÿÿÿ video, and data - across telecommunications networks. More than
ÿÿÿÿÿÿÿÿÿÿÿÿÿ two-thirds of all U.S. Internet traffic flows through an ATM switch at
ÿÿÿÿÿÿÿÿÿÿÿÿÿ some point.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿÿÿÿAnalysts said that Newbridge likely would sell for between $40
ÿÿÿÿÿÿÿÿÿÿÿÿÿ and $45 per share in a takeover, making the company's value
ÿÿÿÿÿÿÿÿÿÿÿÿÿ between $7.1 billion and $8 billion. While telecommunications
ÿÿÿÿÿÿÿÿÿÿÿÿÿ equipment maker Alcatel ÿ(ALA: Research, Estimates) is the most
ÿÿÿÿÿÿÿÿÿÿÿÿÿ likely suitor, analysts said that the London-based communications
ÿÿÿÿÿÿÿÿÿÿÿÿÿ and IT company Marconi PLC (MNI.L: Research, Estimates) is
ÿÿÿÿÿÿÿÿÿÿÿÿÿ another possible bidder.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿÿÿÿNewbridge, which has announced six earnings warnings in the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ past 10 quarters, said in November that it had hired investment
ÿÿÿÿÿÿÿÿÿÿÿÿÿ banker Morgan Stanley Dean Witter to explore strategic options,
ÿÿÿÿÿÿÿÿÿÿÿÿÿ including a possible sale of the company. At the same time,
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Newbridge announced plans to eliminate 10 percent of its
ÿÿÿÿÿÿÿÿÿÿÿÿÿ 6,000-person workforce.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿÿÿÿ"There are a lot of things that argue Newbridge will be bought,
ÿÿÿÿÿÿÿÿÿÿÿÿÿ and Alcatel is one of the most likely buyers," said Paul Silverstein,
ÿÿÿÿÿÿÿÿÿÿÿÿÿ an analyst at Roberston Stephens. "The price is likely to be in the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ $40 to $45 per share range, and it may be announced at the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ CeBIT technology trade conference in Hanover, Germany next
ÿÿÿÿÿÿÿÿÿÿÿÿÿ week."
ÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿÿÿÿ"Newbridge is very close to doing a deal - there is a high
ÿÿÿÿÿÿÿÿÿÿÿÿÿ probability it will be announced by the end of the month," said
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Michael Cristinziano, an analyst at Gerard Klauer Mattison & Co.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ "There are several possible buyers, but it makes the most sense
ÿÿÿÿÿÿÿÿÿÿÿÿÿ for Alcatel."
ÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿÿÿÿ"Newbridge would offer ATM and wireless broadband
ÿÿÿÿÿÿÿÿÿÿÿÿÿ technology to one of the big European players that needs the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ technology," said Jim Kedersha, an analyst at SG Cowen
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Securities. "ATM and broadband wireless are the directions the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ carrier networks are going, and the European vendors are a little
ÿÿÿÿÿÿÿÿÿÿÿÿÿ bit behind in those areas."
ÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿÿÿÿNewbridge shares closed today at 32-3/4, down 2-5/8. That's
ÿÿÿÿÿÿÿÿÿÿÿÿÿ about 20 percent below what analysts believe the company would
ÿÿÿÿÿÿÿÿÿÿÿÿÿ sell for in an acquisition. However, its current price is 66 percent
ÿÿÿÿÿÿÿÿÿÿÿÿÿ above its level in November, when Newbridge announced that it
ÿÿÿÿÿÿÿÿÿÿÿÿÿ had hired Morgan Stanley.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿÿÿÿAlcatel has expanded its presence in the U.S. market by
ÿÿÿÿÿÿÿÿÿÿÿÿÿ acquiring five U.S.-based telecommunications equipment and
ÿÿÿÿÿÿÿÿÿÿÿÿÿ data networking companies over the past 14 months. The most
ÿÿÿÿÿÿÿÿÿÿÿÿÿ recent of those was its agreement last September to purchase
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Genesys Telecommunications Laboratories for $1.5 billion. Before
ÿÿÿÿÿÿÿÿÿÿÿÿÿ that, Alcatel spent a total of $2.8 billion to buy Assured Access
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Technology, Internet Devices Inc., and Xylan Corp. Alcatel is trying
ÿÿÿÿÿÿÿÿÿÿÿÿÿ to improve its ability to compete in the U.S. data networking
ÿÿÿÿÿÿÿÿÿÿÿÿÿ equipment market against market leaders Cisco Systems, Nortel
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Networks, and Lucent.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿÿÿÿAnalysts said that Newbridge would be an attractive target
ÿÿÿÿÿÿÿÿÿÿÿÿÿ because it has a solid customer base of more than 350 of the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ telecommunications and wireless carriers, about 2,000
ÿÿÿÿÿÿÿÿÿÿÿÿÿ experienced networking engineers and designers, and good
ÿÿÿÿÿÿÿÿÿÿÿÿÿ technology in the areas of ATM switching and broadband wireless.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ However, Newbridge also has a reputation for being poorly
ÿÿÿÿÿÿÿÿÿÿÿÿÿ managed.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿÿÿÿ"Newbridge has been a broken ship for quite some time now,"
ÿÿÿÿÿÿÿÿÿÿÿÿÿ said Robertson Stephens' Silverstein. "Their biggest problem is
ÿÿÿÿÿÿÿÿÿÿÿÿÿ inept management. Their CEO, Terence Matthews, should have
ÿÿÿÿÿÿÿÿÿÿÿÿÿ given up the reins a long time ago."
ÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿÿÿÿ"Newbridge has stumbled because of management's inability to
ÿÿÿÿÿÿÿÿÿÿÿÿÿ scale the company in everything ranging from manufacturing to
ÿÿÿÿÿÿÿÿÿÿÿÿÿ product development," said Gerard Klauer Mattison's Cristinziano.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿÿÿÿIn fact, Alcatel's American depository receipts, or ADRs, slipped
ÿÿÿÿÿÿÿÿÿÿÿÿÿ 4-3/16, or 8 percent, to 47-3/8 today in response to investors'
ÿÿÿÿÿÿÿÿÿÿÿÿÿ concerns that the French company could be buying into a problem.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Some analysts say that an acquisition of Newbridge would dilute
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Alcatel's earnings this year.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿÿÿÿAlcatel is much larger than Newbridge, with annual revenues of
ÿÿÿÿÿÿÿÿÿÿÿÿÿ about $20 billion and 120,000 employees around the world.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Newbridge announced last November that its revenue for the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ quarter ended Oct. 31, 1999, rose to $481 million from $457
ÿÿÿÿÿÿÿÿÿÿÿÿÿ million in the same period a year earlier. However, its operating
ÿÿÿÿÿÿÿÿÿÿÿÿÿ income plunged to $5 million from $23.8 million.ÿ |
