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Technology Stocks : Ascend Communications-News Only!!! (ASND) -- Ignore unavailable to you. Want to Upgrade?

To: Gary Korn who wrote (382)	10/21/1997 9:23:00 AM
From: Jeff Jordan	Respond to of 1629

Top Stories: Takeover Chatter Surrounds Ascend By Kevin Petrie Staff Reporter 10/21/97 8:53 AM ET The takeover speculation swirling around Ascend (ASND:Nasdaq) comes as little surprise, given that plenty of irked investors want to repair the broken stock. "Somebody bought it at $80," says K.C. Howell, manager of CrestFunds Capital Appreciation Funds. "They'll do anything to help it." The stock certainly needs nursing -- after brushing 79 1/4 on Jan. 20, Ascend has slipped more than 55% to close down 15/16 at 43 1/16 on Monday. It trades at 29.4 times trailing earnings, excluding charges, and 6.8 times sales. Early in the year, those multiples had stretched as high as 80 times trailing earnings and 15.6 times trailing sales, according to the Baseline data service. Given the sharp and steep reduction in Ascend's valuations, investors shouldn't disregard a merger scenario. While a bungled product transition hurt profits last quarter, overall its technology and customer list are intact. In addition, the renewed suggestion that shoppers such as Northern Telecom (NT:NYSE) or Lucent (LU:NYSE) are approaching Ascend resonates at least one money manager. "I think it makes some sense," says Erik Gustafson, senior portfolio manager of the Stein Roe Growth Stock Fund. In fact, a buyout might bring him back to the stock, which he sold more than a year ago. Not surprisingly, Lucent and Nortel top his list of likely candidates -- they already supply phone carriers with voice products, and are looking to broaden their suite of computer-data equipment. But even at its newly depressed price, takeover chatter may not do a whole lot for Ascend - and Monday's anemic performance might reflect that revelation. Analyst Steve Salopek at Stein Roe thinks Ascend might fetch 6 to 9 times sales for the trailing four quarters. That leaves little room for a premium -- currently the stock trades at 6.8 times trailing 12 month sales. Coincidentally, Ascend paid roughly 6.8 times sales to acquire Cascade earlier this year. The other large networking merger was even cheaper. When U. S. Robotics folded into 3Com in a stock swap on June 12, its stock was trading at 3.6 times trailing sales. More bullish Ascend backers hope Lucent, given the Ma Bell offspring's penchant for making rich takeover bids. On Oct. 15 Lucent said it would buy closely held Livingston for $650 million, or an estimated 14 times sales. But the Lucent scenario makes less sense than a possible Nortel purchase. For one, Lucent does have its hands full with the Livingston acquisition. And the terms of its spinoff from AT&T (T:NYSE) bar Lucent from engaging in pooling-of-interest mergers until October 1998, as analyst Nikos Theodosopoulos at UBS Securities affirmed Monday in a research note. Until then Lucent likely will acquire companies with stock or cash only; some say that would make larger purchases such as Ascend prohibitively expensive. Theodosopoulos, who rates Ascend stock a hold, also writes that Bay Networks (BAY:NYSE), another rumored acquiror, is too early on its turnaround track to make such a large purchase. Bay is still recovering from last year's weakness. That leaves Nortel, a Canadian concern which has built an empire in the business of supplying phone carriers with wireline, wireless and other gear. Boasting annualized revenue of $15.2 billion, Nortel knows how to buy a position in emerging data markets. In June 1996 a Nortel subsidiary merged with Micom, whose systems allow corporations to shuttle voice signals across Internet Protocol (IP) networks. Nortel's primary market remains phone carriers -- which is where Ascend fits in. Ascend supplies the "remote access" equipment that allows carriers and Internet Service Providers (ISPs) to connect customers to the Internet. Duane Eatherly, senior analyst at Banc One Investment Advisors, says Nortel could benefit from Ascend's remote-access products. "It would be great news for the acquiror," Eatherly says. His firm owns a small position in Ascend and a larger one in Nortel, which will report earnings for the third quarter on Tuesday morning. A First Call survey predicts 59 cents per share. A Nortel official declined to comment on the possibility of another acquisition; an Ascend official did not return calls for comment. The obvious caveat to takeover speculation is that Ascend is still digesting Cascade, which it acquired in a pooling-of-interests deal on June 30. Howell, the Crestar money manager, says that Ascend faces numerous challenges in combining distinct cultures, product lines and sales forces. The difficulties of the merger were outlined in an earlier story in TheStreet.com.