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

To: The Phoenix who wrote (51492)	8/3/1998 7:34:00 PM
From: djane	Read Replies (3) \| Respond to of 61433

Petrie/thestreet.com on ASND/SRA. [Discussion of ASND/LU combination] thestreet.com Top Stories: Assessing Ascend's Post-Stratus Takeover Status By Kevin Petrie Staff Reporter 8/3/98 4:08 PM ET Despite the negative reaction by its investors, Ascend (ASND:Nasdaq) did nothing to hurt its attractiveness as a takeover target by agreeing to acquire Stratus Computer (SRA:NYSE). Ascend, which builds equipment for the Internet, confirmed widespread speculation Monday when it announced it would acquire Stratus for stock worth $822 million. Ascend expects to close the purchase, pending regulatory approval, in the fourth quarter, and have it add to earnings in 1999. Stratus' appeal is its "signaling system 7," or SS7 switch, which directs voice traffic on telephone networks. Ascend wants to use the technology as a stepping stone to the long-hyped "convergence" of the Internet with conventional phone systems, which supposedly will make Internet telephony possible. It intends to divest the company's other divisions. But investors have shown little enthusiasm for the deal. Ascend's stock plunged 12% last week after reports of the deal surfaced on Wednesday. It was trading at 44 9/16 today, up 1/16. Stratus' stock was up 3 1/16 to 31 15/16. Long-running speculation holds that giant Lucent Technology (LU:NYSE), mainly a phone company supplier, will acquire Ascend to bolster its portfolio of data-based products and somehow develop "converged" products down the road. Ascend has even bested industry titan Cisco (CSCO:Nasdaq) in supplying Internet service providers and phone carriers with data products. But Lucent is restricted from using pooling-of-interest accounting in a merger until October under the terms of its spinoff from AT&T (T:NYSE). In a pooling transaction a company doesn't have to book goodwill, which subtracts from earnings over time in a purchase transaction. Some observers have even said Ascend's stock price already includes a takeover premium because of the speculation. Ascend and Lucent both declined to comment on the possibility of a merger. The case for Lucent purchasing Ascend remains intact. For one thing, ongoing industry consolidation will makes it tough for Ascend to fly solo. For another, industry experts say Ascend will swallow Stratus easily, leaving it room to fold itself into a larger company such as Lucent. Says one Ascend insider: "There really is a lot less [product] overlap than people think" between Lucent and Stratus. The Stratus deal "does nothing to diminish the possible returns that Ascend can bring Lucent with a possible acquisition," adds strategist Paul Foster with 1010WallStreet.com, an information service linked to options firm Mercury Trading. Foster says Lucent is large enough to absorb one more Ascend division without increasing the relative complexity of the transaction. Sam Kim, general partner with Beacon Capital Management, says Stratus' small SS7 business will be easy to digest, so it wouldn't compound Lucent's potential integration headaches with Ascend. At the same time, Kim says it's unclear how Stratus positions Ascend for the convergence of voice and computer systems. Fusing Stratus' products with Ascend's data products remains a difficult task. Indeed, Ascend chief technical officer and co-founder Jeanette Symons says the immediate use of Stratus' products is actually to split modem calls away from the phone network -- in a sense, the opposite of convergence. Down the road they hope to achieve convergence. Kim's firm took profits on Ascend recently, correctly surmising that Ascend's stock would fall on rumors that it was looking to buy someone. At the time the rumored target was Advanced Fibre Communications, (AFCI:Nasdaq) also a phone-gear supplier. "The likelihood of Lucent buying [Ascend] has probably been diminished," adds Craig Johnson, principal with The PITA Group independent research firm. "Lucent already has SS7." The net effect, however, is a wash: Wall Street still wants Ascend to combine with Lucent. For more info on institutional holders of these stocks, as well as financial statements and earnings estimates, please see the Thomson Company Reports. c 1998 TheStreet.com, All Rights Reserved. TOP \| ABOUT US \| CONTENTS \| SUBSCRIBE \| ADVERTISE \| TRADE ONLINE \| FEEDBACK \| SEARCH \| HELP