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To: Narotham Reddy who wrote (46579)	5/11/1998 12:44:00 PM
From: Narotham Reddy	Read Replies (1) \| Respond to of 61433

N+I Buzz Puts Lucent On Bay Watch By Joe McGarvey, Inter@ctive Week Online May 11, 1998 7:41 AM PDT The Networld+Interop networking show in Las Vegas was abuzz last week with talk that a blockbuster merger - one that could rival Cisco Systems Inc. for supremacy of the data networking world - could be imminent. While analysts and industry insiders were confident about the timing and the rationale behind the expected merger, the only pieces apparently missing from the puzzle were the companies involved. Of the multiple scenarios that could play out as early as this week involving telecommunication giants Lucent Technologies Inc. and Northern Telecom Inc. and data-equipment makers 3Com Corp., Ascend Communications Inc. and Bay Networks Inc., several analysts speculated that the most likely is the acquisition of Bay Networks by Lucent. Christine Heckart, vice president at research company TeleChoice Inc., saiddeal or negotiations between the companies, and officials from both Lucent and Bay neither confirmed nor denied the rumored acquisition. "We haven't taken anybody off the table," said Bill O'Shea, president of Lucent's Data Networking Systems business. "We look at everybody right now." Although Stephen Pearse, executive vice president and general manager of Bay's Internet/Telecom Business Group, cited company policy to not comment on rumors, he added that Bay Chief Executive Officer David House was committed to keeping the company independent. Fueling most of the speculation of an impending merger of a telecommunications and a data equipment provider is the steady convergence of the voice and data infrastructures. In order to better compete with Cisco - which is strategically infiltrating the traditional telecommunications territory with acquisitions and voice-related enhancements - the purchase of a strong data equipment maker such as Bay is seen as a logical defensive move for Lucent. One possible obstacle in the way of Lucent's purchasing a company the size of Bay Networks, which has a market capitalization of $5.4 billion, is that Lucent is not permitted to consummate a stock deal as a pooling of interest until Oct. 1, which would be two years after the company split from AT&T Corp. Companies can use pooling-of-interest accounting, which can reduce future tax charges, only after they have been independent for two years. If Lucent does not act before Oct. 1, however, the company risks losing Bay to arch rival Nortel. (Kimberly Weisul and Carol Wilson contributed to this story.) Bay would be a good fit for Lucent, which is on a quest to rapidly expand its data networking arsenal. But Heckart added that she had no knowledge of a pending