If this was already posted, I apologize. [Ownership percentages are wrong. NN owns 40% and TM's Celtic House 22%.]
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December 9, 1998
Dow Jones Newswires
Nor Telecom Sees Revs Of $600M-$800M/Yr From Cambrian Deal
By BEN DUMMETT
Dow Jones Newswires
TORONTO -- Northern Telecom Ltd. (NT) expects additional revenues of between US$600 million and US$800 million a year from its acquisition of Cambrian Systems Corp.
As reported earlier Wednesday, Northern Telecom, a big networking telecom equipment maker, has agreed to acquire closely held Cambrian for US$300 million. Cambrian makes dense wavelength division multiplexing, or DWDM, technology, which speeds the flow of data traffic over networks servicing metropolitan areas.
In a telephone interview, John Roth, vice-chairman and chief executive of Northern Telecom, estimated this market is worth about US$2 billion annually, and "we want to dominate it," he said. That means Northern Telecom aims to capture a market share of about 35% to 40%, he said.
Northern Telecom Ltd.'s (NT) move to acquire Cambrian Systems Corp. complements its current business of building long-distance telecommunications networks using fiber-optic technology.
Currently, Northern Telecom, which is based in Brampton, Ont., controls about 67% of the long-distance fiber-optic network market in North America and is a dominant player in Europe, John Roth, Northern Telecom's chief executive, said in a telephone interview.
In Europe, for instance, Northern Telecom has won six of the last seven fiber-optic backbone networks, and the company plans to announce another win later Wednesday for another win in Sweden.
Cambrian's technology is important in the development of fiber-optic networks because it brings in line the transmission capacity of metropolitan area networks with long-distance fiber-optic networks.
"Now, we can't feed these (metropolitan-area networks); what's called the access plan doesn't have as much capacity as the backbone," Roth said.
Europe in particular will be an important market for Cambrian's products because of the close promixity of its cities, Roth added.
Cambrian's technology also allows Northern Telecom to cut what it now charges its customers to build metropolitan-area networks by about 30%, by reducing the amount of gear needed to build these networks, Roth said.
At US$300 million, Northern Telecom Ltd. (NT) seems to be paying a high price for the acquisition of Cambrian Systems Corp., especially since Cambrian doesn't yet generate revenues and its product won't be on the market until the middle of next year.
Asked about the price tag, John Roth, Northern Telecom's chief executive, noted that were other companies interested in acquiring Cambrian. He declined to specify the companies.
However, a source close to Cambrian suggested Lucent Technologies Inc. (LU) was a likely bidder, citing the interoperability of Cambrian's products with those of Lucent.
No one was immediately available at Lucent for comment.
Mark Lucey, technology analyst at Kearns Capital Ltd., acknowledges that Northern Telecom is paying a lot for Cambrian. But he applauds the move because it complements Northern Telecom's fiber-optic network business, which has been a "home run." Moreover, Cambrian technology is more advanced than that of the competition and metropolitan fiber-optic networks are the "next growth phase" in the fiber-optic network industry.
Cambrian Systems Corp. is 40%-owned by Newbridge Networks Corp. (NN). Both are based in Kanata, Ont. The rest of Cambrian is owned by Celtic House, the investment arm of Terry Matthews, Newbridge's chief executive and chairman, and Cambrian executives.
Newbridge will receive 40% of the proceeds from the sale, corresponding to its equity stake in Cambrian.
Newbridge expects to book these proceeds in the current quarter, but it's premature to estimate how much it will receive, Newbridge spokesman John Lawlor noted. As reported part of the acquisition price is contigent on Cambrian reaching certain "business objectives."
According to Mark Lucey of Kearns Capital Ltd., Northern Telecom said will pay US$240 million of the total up front. The remaining US$60 million depends on Cambrian meeting certain objectives.
Still, the ultimate amount Newbridge receives can only add to its already substantial cash holdings of about C$750 million, which could be used for strategic acquisitions to bolster Newbridge's core asynchronous transfer mode, or ATM, equipment business, Newbridge spokesman John Lawlor said.
For Newbridge, strategic acquisitions could involve companies making products for Internet-based networks, or developers of intelligent software equipment used to transmit voice over packet as opposed to traditional circuit-switched networks, Lawlor said.
Indeed, Newbridge competitors CISCO Systems Inc. (CSCO) and Ascend Communications Inc. (ASND) recently acquired companies developing intelligent software for packet-switched networks.
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