Lucent gets acquisition green light [ASND as most likely]
news.com
By Sandeep Junnarkar
Staff Writer, CNET NEWS.COM
August 17, 1998, 4:55 p.m. PT
Lucent Technologies is poised to gobble up a large
networking company in hopes of capitalizing on
opportunities presented by the convergence of
voice and data networks, industry analysts
speculate.
Since its spin-off two years ago from AT&T,
telephone equipment maker Lucent has been
restricted by the terms of its separation from the
telecommunications giant to swallowing smaller
players. But starting in October, Lucent will be able
to use the "pooling of interests" method of
deal-making, an accounting method that will allow
for stock-swap takeovers, which ultimately lower
the cost of making acquisitions.
High-tech companies
increasingly have been
using their currency to
make acquisitions, fueled
largely by the recent
run-up in the stock
market. Now Lucent
can join the pack.
"Lucent has done several
small, tuck-in mergers
because they couldn't
use the 'pooling'
treatment yet," said
Linda Varoli, an analyst
with Merger Insight, a
market research service.
"It is an open secret that
come October, Lucent
will go shopping."
While Northern
Telecom's acquisition of
Bay Networks has been
played as a move by
which
the
companies
can
gain
better position in the converging industries, the
acquisition also widely was viewed as an attempt
by Nortel to get a "a jump on Lucent before [it]
could use pooling treatments" to acquire Bay itself,
according to Varoli.
Analysts almost unanimously agree that Lucent's
No. 1 takeover target will be Ascend
Communications.
"[Lucent] will have to flesh out its remote access
products," said Aydin Tuncer, an analyst with S&P
Equity Group. "They already have one product line
in that area, but may want to move into another line
that is a bit more higher-capacity. That's why a lot
of people are talking about Ascend
Communications being a popular takeover target."
Just last month, Ascend acquired Stratus
Computer, a move that some in the industry say
was designed to make them a less appealing
takeover candidate for Lucent.
"I think, if anything, it would make Ascend even
more attractive to Lucent," said Varoli. "[Ascend]
has so much technology that is more up-to-date,
and it didn't really become big enough to ward off
Lucent."
A Lucent shopping list prepared by analysts who
follow the AT&T spin-off is likely to continue
growing.
"I think that cable modems is one area [Lucent is]
weak in," said Bruce Carlsmith, an analyst at
NationsBanc Montgomery Securities. "I would also
look into the data area generally, and they need a
great router presence."
Although Lucent already has a strong [DSL]
product line, Tuncer said he thinks they still will
need to beef up in order to compete in that sector.
"Cisco is definitely breathing down Lucent's back in
that area," he said.
Some other companies mentioned as possible
takeover targets are Western Telematic, for its
DSL technology; Com21 Cabletron and 3Com in
the modem arena. Even Tellabs, which is moving to
acquire telecom equipment provider Ciena, is a
remote possibility, though most feel it is too large to
be acquired by Lucent.
Without the use of this preferred accounting
practice, Lucent has resorted to acquiring nearly a
half-dozen small companies in less than a year. In
July, Lucent acquired switch technology maker
LanNet for $115 million in cash, SDX Business
Systems for about $200 million in cash, and
Australian telecom equipment maker JNA
Telecommunications Limited for $70 million in
cash.
Earlier in the year, Lucent moved to acquire Yurie
Systems and Prominet Corporation.
"I think it is in Lucent's best interest to wait until
October and not saddle itself with an incredible
amount of goodwill debt," said Varoli.
In either case, the stock market has been bullish on
Lucent and its ability to weather the coming
convergence competition. The stock has risen
steadily since 1996 from about 20 to as high as
108.5. Lucent closed today at 87.81, up 2.26
percent.
Related news stories
Ciena, Tellabs deal on track August 17, 1998
Lucent to take $145 million charge August 17,
1998
Lucent aims to expand in Asia August 4, 1998
Lucent posts loss, beats estimates July 22, 1998
Lucent bids $70 million for JNA July 20, 1998
Lucent to acquire LanNet July 9, 1998
Lucent slams Cisco with suit June 18, 1998
Lucent gets British phone firm June 8, 1998
Lucent wants data traffic May 27, 1998
Lucent pushing DSL technologies May 5, 1998
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