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Technology Stocks : BAY Ntwks (under House) -- Ignore unavailable to you. Want to Upgrade?

To: Mang Cheng who wrote (6646)	6/18/1998 1:45:00 AM
From: Greg Jenkins	Read Replies (1) \| Respond to of 6980

The following is from AG Edwards: Recent Development: (06/15/98) Northern Telecom agrees to Buy Bay Networks This morning Bay and NT announced a definitive merger agreement through which Nortel will acquire Bay Networks. The value of the deal is $9.1 billion based on Friday's closing prices. Each Bay share will be exchanged for 0.6 (fixed number) NT shares. Please note that the price of Bay will vary based on the share price of NT. The deal is expected to close in the third calendar quarter and will result in a large one time charge which has not been specified yet. NT expects the deal to be dilutive to 1998 results but acretive in 1999. Combining our Bay model with a model for NT it would appear that for the deal to be acretive in 1999 the combined company would have to generate an additional $50 million in revenues and/or cost savings. We believe that this should be easily attainable and will likely be due to increased revenues versus cost cutting. This deal marks the first major move of a traditional voice networking company into the enterprise data networking market. Other companies on both the voice and data side have talked for a number of quarters about the move to a converged network but this merger marks the first real step in this direction. The desire for users to communicate with anyone, at anytime and from anywhere in the world has caused an explosion in the demand for greater bandwidth to handle the transmission of all of this data. As a matter of fact, in the very near-term, data traffic will surpass all voice traffic in the world. This transition is putting the traditional voice and data networking providers on a collision course as both try and position themselves to benefit from this change. Both sides have made a number of smaller acquisitions in order to test the water on how to move their business into the converged networks of the future. In these converged networks, users will be transmitting voice, video and data over a singe IP (language that computers on the Internet speak) based network. This focus on IP plays into the strength of the data networking players. However, the voice networking providers have the benefit of building reliable networks that just don't fail. In the NT and Bay agreement, we believe that it was in NT's best interest to make a very large acquisition up front versus spending millions of dollars and years of work to try and build this business from scratch. By acquiring Bay, NT gains a foothold in the data networking space almost instantly. In this merger there is little to no product overlap and Bay will continue to be run as a stand alone business unit and will be the focal point for all of Nortel's current and future data networking businesses. We believe that this is good for Bay since the company was currently struggling through a number of major product transitions that has materially negatively impacted the company's results. Bay still generates 25% of its quarterly revenues from shared media which is a rapidly declining market. We believe that NT paid a fair price for Bay given its financial condition and the fact that it saves NT hundreds of millions of dollars and years of time to develop its own business to compete with the data networking providers. For those investors who have a shorter term time horizon we would take advantage of the run up in Bay's share price and sell positions. While we do not have formal coverage of NT, for those who want to stay in the networking area, we would suggest holding the shares

To: Mang Cheng who wrote (6646)	6/18/1998 9:19:00 AM
From: Bosco	Read Replies (1) \| Respond to of 6980

Dear Mang - always good to read your post, how've you been? I am not sure I would agree with you though. Maybe I ve not followed NT, but honestly, I ve never heard of NT's rise b/c of CSCO's interest. Rather, it seems that LU, NT and Alcatel have tracked pretty well with one another, with LU being perceived as the top dog and thus has garnered more attention. Also, I am not sure the parallel between COMS/USRX and NT/BAY works. I mean, no offense, the former is the marriage of 2 highly cost effective commodity networkers, while BAY has a different set of problems. The latter has a sad chapter in its merger history. The counterpoint is that this time it is not merger of equals. The latter also has a declining segment, namely, shared media. However, I'd think that it is factored in to the risk/reward between the declining SM and ramping up of switches. Best, Bosco

To: Mang Cheng who wrote (6646)	6/23/1998 6:15:00 PM
From: G. Richmond	Read Replies (1) \| Respond to of 6980

Mang, I have to agree with Bosco. I never heard any mention that Cisco was out to buy NT. Quite honestly, I don't quite see how they could pull it off either. As far as the merge, with House as Pres of NT, do you think he really needs to go back and change what he just fixed from the Wellfleet/Synoptics mess? My feeling is that he's already got 20 months of reconstructive surgery out of the way so it's a matter of pulling in the data business from NT. House is a man of action. He's efficient, he's able get things done, ( probably because he's not wasting time on these boards ) and he's in this game to win. The USRX/3com merge was doomed from day one because they both have tremendous commodity exposure not because of any geography problems. Clearly these things can be done right, with proper management. If LU had been the suitor, perhaps there may be more merger pains because of the increased overlap in technology. With NT, I see very little overlap and lots of synergy. I think once earnings are out of the way, the picture will clear up. It's funny that almost every article I read has a negative twist, i.e. NY Times last Monday had a bit saying that Bay had disappointed 5 out of the last 9 quarters, which is true. On the other hand, Bay also beat estimates 4 of the last 5. BTW, House has only been there for those 5. So give credit to Ludwick for blowing 4 of 4. In my book, House is batting .800 GR