$95 a share????
Lucent in Talks to Buy Ascend, People Familiar Say (Update1)
Lucent in Talks to Buy Ascend, People Familiar Say (Update1) (Adds details on Lucent purchases, analysts' comments.)
Murray Hill, New Jersey, Jan. 11 (Bloomberg) -- Lucent Technologies Inc., the top maker of phone equipment, is in talks to acquire No. 4 networking-equipment maker Ascend Communications Inc. to add equipment for the fast-growing data-networking market, people familiar with the companies said.
An agreement could be announced as early as Wednesday, the people said. Ascend, which has $1.5 billion in annual sales, has a market value of $16.64 billion. The Financial Times, citing unidentified people, said Lucent could pay more than $16 billion.
Lucent shares have more than doubled in three months, and the company is seeking approval to double the stock available for acquisitions and splits, making a stock purchase easier. Ascend would give Lucent the powerful computer switches it needs to compete with Cisco Systems Inc. in the market for Internet equipment sold to phone companies. ''If Lucent buys Ascend, they'll be filling a key hole in their product line,'' said Craig Johnson, principal analyst with market researcher Pita Group in Portland, Oregon.
Officials at the companies declined to comment.
Phone-equipment makers like Lucent are looking to sell more networking equipment to telecommunication providers, which are faced with carrying mushrooming Internet traffic.
Alameda, California-based Ascend rose 5 1/4 to 76 11/16, its highest in two years. Trading of 17.7 million made it the fifth- most active stock in U.S. markets. Murray Hill, New Jersey-based Lucent fell 2 5/16 to 112 15/16.
Lucent Acquisitions
Since its spinoff from AT&T Corp. more than two years ago, Lucent has used its high-flying shares to buy companies that can give it new technology and inroads to new customers. Earlier today, Lucent agreed to buy closely held billing software maker Kenan Systems Corp. for $1.45 billion in stock.
Lucent and Ascend have talked in the past, though the companies haven't been able to agree on a price, a person familiar with those earlier discussions said.
Some analysts have speculated that Lucent won't make an all- stock acquisition that would dilute its earnings. For its fiscal year ending in September 1999, Lucent is expected to earn $2.11 a share, the average estimate of analysts polled by First Call. ''Lucent could do a deal in the high 80s,'' said Paul Johnson, an analyst with BancBoston Robertson Stephens, who rates Ascend ''buy.''
Ascend could be worth even more, though, because its sales and earnings are expected to grow rapidly, BancBoston's Johnson said. Some analysts said Lucent could pay as much as $95 a share for the company, which is expected to earn $1.67 a share for its fiscal year ending in December 1999, up from an expected $1.18 in 1998.
Ascend's directors are expected to meet sometime today or tomorrow to discuss a possible purchase by Lucent, a person familiar with the board's plans said.
Industry Leader ''Lucent-Ascend would be the strongest company in a converged voice and data world,'' said Gregory Geiling, an analyst at J.P. Morgan Securities Inc., who rates Lucent ''buy.''
Ascend unveiled a computer switch for routing large amounts of data on phone networks in the first half of last year with features that rivals, including Cisco, won't be able to match until mid-1999, analysts said.
The switch, which uses technology known as asynchronous transfer mode that gives phone companies more control over data traffic, is helping it win and retain business from phone companies. The so-called ATM switches provided 40 percent of Ascend's revenue for its third quarter.
Lucent dropped plans to develop a rival switch late last year and began reselling Ascend's switches to its customers, analysts said.
A Lucent purchase of Ascend ''could mean real competition for Cisco,'' Pita Group's Johnson said.
Cisco shares fell 2 to 104 11/16.
Integration
To be sure, it won't be easy for Lucent to integrate the data-networking companies it has purchased. Combining Lucent's East Coast heritage with Ascend's Silicon Valley culture could prove difficult, analysts said. ''The challenge for Lucent will be knitting all of these companies together,'' Pita Group's Johnson said. ''They haven't proved they can do what Cisco has done.'' San Jose, California- based Cisco has made 30 acquisitions since September 1993.
Last May, Lucent bought Yurie Systems Inc., which also makes networking equipment, for $1 billion, and in October 1997, Lucent bought Livingston Enterprises Inc. for $650 million in stock. Since the spinoff from AT&T, Lucent has agreed to more than 17 acquisitions worth more than $4 billion.
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