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

To: Glenn McDougall who wrote (58754)	1/12/1999 8:18:00 AM
From: Immi	Respond to of 61433

Will 'Convergence' Prod Lucent-Ascend Merger? Date: 1/12/99 Author: Reinhardt Krause and Michele Hostetler The merger dance between Lucent Technologies Inc. and Ascend Communications Inc. may be ready to take center stage. Lucent is in talks to buy Ascend, say analysts. But a deal could depend on whether their share prices are moving in harmony. Both have been rising, but Ascend's can't rise too high for Lucent to afford, analysts say. One analyst says Ascend's price could be as much as $18 billion. The industry has long speculated on this marriage. Lucent covets Ascend's data networking products, analysts say. Phone companies are buying more such gear because voice and data services are converging onto one network. Alameda, Calif.-based Ascend's shares rose 5 1/4 Monday to 76 1 1/16, while Lucent's fell 2 1/2 to 112 3/4, as it announced another purchase. Lucent said it will buy privately held Kenan Systems Corp. for about $1.5 billion in stock. Cambridge, Mass.-based Kenan sells customer billing software. Ascend would be a much bigger prize for Lucent, the largest seller of phone-service gear. It has products key to large Internet networks. ''We think it's likely a Lucent-Ascend deal will happen,'' said Nikos Theodosopoulos, an analyst at Warburg Dillon Read LLC. ''The two companies have been working together for a few months. And Lucent's stock has moved up considerably, which allows it to make acquisitions.'' Before Monday, Lucent's stock had risen from about 63 in early October, when it dipped, to 115. Ascend's stock is up from 25 1/2 in November '97 to 72. Ascend downplayed industry speculation. ''Certainly Ascend is an attractive acquisition target,'' said spokesman Tim Donovan. ''But we're not putting ourselves on the block.'' Lucent declined to comment. The oft-rumored merger would give the combined company more clout against rivals Nortel Networks Ltd. and Cisco Systems Inc., analysts say. Ascend is the fourth-biggest maker of computer networking gear behind Cisco, 3Com Corp. and the former Bay Networks. Canada's Northern Telecom bought Bay last year for $6.9 billion and changed its name to Nortel. Analysts call 3Com another possible Lucent target. ''Ascend is the right play for Lucent,'' said Roger Wery, a San Francisco- based analyst with consultant Renaissance Worldwide Inc. ''This is about Lucent's transformation from a voice-based company to the data world.'' As of Oct. 1, AT&T Corp. spinoff Lucent was free to use accounting rules known as ''pooling of interests.'' Pooling enables stock-swap takeovers. That lowers the cost for buyers, which don't have to take out loans and can keep their cash for other uses. The telecom world has changed drastically in the two years since the spinoff. Phone systems are being rebuilt to carry voice, data and Internet traffic more efficiently. Older carriers are being challenged by upstarts like Qwest Communications International Inc. Firms like Qwest are building computer-style phone- data networks using Internet-based networking gear from Cisco, Ascend and others. Lucent and its rivals must stockpile key technologies or risk losing market share. ''As strong and profitable as Lucent is today, they still need to prepare for tomorrow's marketplace,'' said Atlanta-based telecom analyst Jeffrey Kagan. Ascend may fetch a high price because it has other potential suitors. They include Sweden's L.M. Ericsson AB, analysts say. Its shares up, Lucent may be better able to pay a premium for Ascend today than it could three months ago, says Gregory Geiling, an analyst at J.P. Morgan Securities Inc. in New York. ''We think Lucent could pay up to $85 a share for Ascend, and the deal still would not be dilutive (to earnings),'' he said. That would come out to about $18 billion. London's Financial Times Monday reported that Lucent and Ascend were close to announcing a deal. Some analysts doubt talks have reached that stage. ''Price is something that has caused many deals to collapse,'' Geiling said. Ascend Monday sold a computer unit to an investor group. It had acquired Stratus Computer Inc. in August for about $822 million. But Ascend is keeping Stratus' telecom-related products. Stratus makes SS7 products for data networks. It lets data networks add such voice features as call waiting and caller ID. SS7 makes Ascend more attractive to Lucent, says Stan Schatt, an analyst with Giga Information Group Inc. In the last two years, Lucent has bought some smaller companies to fill product gaps. They include Yurie Systems Inc., Octel Communications Corp., Prominet Corp. and Livingston Enterprises Inc. Ascend would offer Lucent more products and big customers. ''Ascend has 20 of the top 25 Internet service providers as its customers,'' said Virginia Brooks, an analyst with Boston-based Aberdeen Group. ''That's a level (Lucent) has yet to penetrate.'' Some analysts say Ascend is in no rush. ''Ascend can stand alone,'' said Greg Howard, an analyst at San Jose, Calif.-based Infonetics Research Inc. ''I think they can survive at least four to five more years.'' Ascend's third-quarter sales rose 37% to $370 million from $270 million a year earlier. Net income climbed 65% to $66 million from $40 million. (C) Copyright 1999 Investors Business Daily, Inc. Metadata: LU ASND NT CSCO COMS T QWST ERICY I/4890 I/3574 I/4891 E/IBD E/S