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Technology Stocks : Newbridge Networks -- Ignore unavailable to you. Want to Upgrade?

To: Glenn McDougall who wrote (7900)	11/26/1998 6:20:00 AM
From: Glenn McDougall	Read Replies (1) \| Respond to of 18016

Takeover rumours boost Newbridge shares Stock jumps 17% as talk about Siemens intensifies Thursday, November 26, 1998 SIMON TUCK With files from reporter Marian Stinson. Ottawa -- Newbridge Networks Corp. shares jumped 17 per cent in furious trading yesterday as investors reacted to solid second-quarter results and intensified speculation the company is on the auction block. Rumours about Newbridge being bought by Munich-based Siemens AG have persisted for most of the three years the two telecommunications giants have been working together. But the latest round of rumours was loud enough that currency traders linked it to yesterday's surprising rise in the value of the Canadian dollar. The loonie ended the day up half a cent from Tuesday at 64.98 cents (U.S.). The speculation, along with a host of less dramatic developments, pushed Newbridge shares up $6.55 (Canadian) to $45.30 on the Toronto Stock Exchange on volume of 5.7 million shares. The company's second-quarter results, which showed improved earnings for a third consecutive quarter, also helped spark the share price jump. For the quarter that ended Nov. 1, Newbridge matched analysts' expectations with earnings of $48-million or 27 cents a share, a 34-per-cent increase from the previous quarter. Revenue was $457-million, a 7-per-cent jump from the first quarter. The results prompted a number of analysts to raise their ratings on Newbridge shares. SG Cowen bumped the stock to a "strong buy" from "buy" and Merrill Lynch & Co. raised it to a near-term "accumulate" from near-term "neutral." The long-term rating remained "accumulate." Despite plenty of skepticism about the takeover rumours, analysts don't deny the speculation may have merit. "If you're in the industry, why wouldn't you be looking at [Newbridge]," said Gurinder Parhar, a technology analyst at HSBC Securities in Toronto. "The industry is generally in consolidation." Analysts have been placing bets on who would be the next industry giant to be taken over as the data networking and voice networking sectors converge and fight over control of the future of global communications. Speculation has increased since Northern Telecom Ltd. bought Bay Networks Inc. earlier this year. In fiscal 1998, Newbridge had revenue of $1.62-billion. While that makes it one of Canada's largest telecommunications companies, it would be swallowed quite easily by Siemens, which had revenue of about $100-billion in the last fiscal year. "If you're looking for a logical data networking company to acquire, Newbridge would definitely be a candidate," Mr. Parhar said. "But we've heard all this before. I'm just getting tired of hearing about speculation." Newbridge president and chief operating officer Alan Lutz may have at least partly fuelled the speculation. Mr. Lutz, who had spent a week in Munich earlier this month with Siemens officials, confirmed the often-rocky relationship is again in good shape during a Tuesday evening conference call with analysts and reporters. But the company denied yesterday that Mr. Lutz's statement implied a takeover is in the works. "[What Mr. Lutz said] is no different than what we've said all along," said Newbridge spokesman Paul Goyette. "We're not in discussions with anybody." Siemens officials couldn't be reached for comment. The takeover rumours weren't the only things that Newbridge investors had to think about. The company's shares were also halted early yesterday morning as it was announced that Newbridge and Siemens had landed a contract to build an asynchronous transfer mode (ATM) network for China Post, the state Postal Bureau of China. Newbridge said the two partners will supply a broadband network for the delivery of voice, data and Internet protocol [IP] services to the Chinese provinces. The company wouldn't release the value of the deal but analysts estimated it to be worth about $15-million (U.S.) a year with opportunities for more lucrative gains a year or so down the road. Newbridge rivals Lucent Technologies Inc. and Ascend Communications Inc. are also slated to get a piece of the same deal. There are, however, other more lucrative contracts also up for grabs. The most significant of which is the Global One deal to supply new backbone equipment throughout much of Europe and the United States. The deal, of which Newbridge is widely believed to have won at least a part, could be worth as much as $750-million. Mr. Lutz said Tuesday night that Newbridge expects to make an announcement about Global One by next Thursday. The company's solid second-quarter results, released Tuesday, can't be discounted. While less than glittering, the results further increased Newbridge's credibility as it tries to stage a comeback from last year's stock collapse.