Anindo,
Here's the WSJ take on ASND/SRA. I too am an ASND holder.
August 3, 1998
Ascend Is Poised to Buy Stratus
In Stock Deal Worth $800 Million
By LEE GOMES and JON G. AUERBACH
Staff Reporters of THE WALL STREET JOURNAL
Ascend Communications Inc. is poised to buy Stratus Computer Inc. in an $800 million stock deal that would be another sign of how the Internet is changing telecommunications.
If the deal goes through, Ascend, based in Alameda, Calif., plans to exchange three-quarters of an Ascend share, which translates to about $33.35, for each of the roughly 24 million shares of Stratus, of Marlboro, Mass., people familiar with the matter said.
Ascend's board was meeting late Sunday night to consider final approval of the pact. The Stratus board gave its preliminary approval late last week. While last-minute snags could crop up, the agreement is expected to be officially announced Monday. Company officials wouldn't comment.
Based on Friday closing prices for the two stocks, the purchase price represents a 15% premium for Stratus shareholders. But earlier last week, when the negotiations were at a critical point, the premium had been closer to 80%.
Sell-Off of Ascend
After reports speculating about the impending deal appeared Wednesday, Stratus shares began climbing, and Ascend stock began slipping. On Friday, shares in Ascend closed in Nasdaq Stock Market trading at $44.4688, down 15% for the week. Stratus closed in New York Stock Exchange composite trading at $28.875, up 31% for the same period.
Analysts blamed the Ascend sell-off on general investor squeamishness over acquisitions. What is more, the possibility of an Ascend-Stratus deal initially puzzled many people, since the two companies are in what are usually regarded as entirely separate markets. Ascend makes communications gear used by telephone carriers and Internet service providers, while Stratus supplies high-end computers designed to operate 24 hours a day.
But a growing part of Stratus's business involves selling specialized computers used by telephone carriers to run the Signaling System 7, or SS7, software that is at the heart of the voice network. With voice and data communications merging because of the Internet, networking equipment companies like Ascend are beginning to offer products from both the voice and data worlds, with an eye to one day fusing them into a single technology. Cisco Systems Inc., the networking-industry leader and a fierce Ascend rival, is also branching out into the SS7 market, though it has stopped short of buying a full-fledged SS7 computer maker.
Committed to Purchase
People close to Ascend and Stratus said both sides were committed to the purchase even with the decline in Ascend's share price, which they said had been anticipated.
Indeed, this isn't the first time Ascend is being punished by Wall Street for its interest in a Boston-area company. In March 1997, Ascend announced a $3.7 billion purchase of Cascade Communications Corp. of Westford, Mass., news of which sent Ascend's stock plummeting 22% in a single day. But that purchase is now regarded by analysts as a masterstroke, since Ascend is using the Cascade line of products to beat Cisco routinely in several key product lines.
Ascend is getting Stratus on the cheap. The latter's stock is well off its 52-week high of $60.75, in large part because of a 20% decline in sales and a $10 million loss in its most recent quarter, owing to a slowdown in its U.S. and Asian markets.
Ascend plans to sell off the roughly 60% of Stratus operations that don't target the telecom industry but involve such other markets as financial services, where growth has been much slower. As such, the purchase allows Stratus to accomplish what it has been trying to do for the last year: positioning itself exclusively as a telecommunications supplier.
Benefits, Charge
Other benefits to Ascend include Stratus's roughly $280 million in cash as well as its impressive client list, which includes many of the world's largest telecom companies.
Ascend plans to take a one-time restructuring charge of $90 million this year in connection with the purchase, along with a larger accounting charge for in-process research and development. And it would write off $200 million in goodwill over the next 10 years. Some 500 of Stratus's 2,400 workers are expected to lose their jobs immediately, while another 1,500 are expected to go with the parts of the company being sold. Just 400 Stratus workers will end up at Ascend. The company's projections show the purchase adding to earnings starting next year.
A deal, however, complicates a possible purchase of Ascend by Lucent Technologies Inc., which many people in the networking industry are predicting will occur in the fall. But one person close to Ascend said officials of that company didn't view the Stratus deal as affecting a Lucent purchase one way or another.
As part of the agreement, Stratus's well-regarded chief executive, Bruce I. Sachs, 38 years old, would head up Ascend's telecom business. Last year, Ascend attempted to recruit Mr. Sachs, say people familiar with the matter, but he declined the offer because he wasn't interested in leaving the Boston area.
Mr. Sachs had previously worked at Bay Networks Inc. and had been brought to Stratus last May to help get its house in order and prepare for a possible sale. Ascend first approached Stratus about a possible deal several months ago while the two companies were engaged in a project with MCI Communications Corp.
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