Pat,
Not to rub salt into our wounds, but...
Video, Audio and transcript of this morning's CNBC interview with McGinn and Ejabat is available at the NASDAQ site...
Video:
msnbc.nasdaq.com
Audio:
msnbc.nasdaq.com
Transcript:
mktnews.nasdaq.com
CNBC - SQUAWK BOX
LUCENT TECHNOLOGIES CEO RICHARD MCGINN AND ASCEND COMMUNICATIONS CEO MORY EJABAT
JANUARY 13, 1999
ABSTRACT: McGinn says Lucent is not done on the acquisition trail and will be seeking out partnerships in high growth areas. Ejabat
says the deal with Lucent was "made in heaven" and exactly what Ascend's shareholders wanted. McGinn says the company is
committed to organic growth.
Mark: The other big story this morning: Lucent Technologies is merging with Ascend Communications. Lucent will pay about 20 billion
dollars in stock. That comes to about 89 dollars a share. Joining us now are the two men behind the deal: Richard McGinn, CEO of
Lucent Technologies. And Mory Ejabat, CEO of Ascend Communications. Gentlemen, good morning. Thank you very much for being
with us.
Good morning.
Good morning.
Mark: Mr. Ejabat, how does it feel to be out of a job?
Well, I'm not out of a job yet. I'm here to make sure this transition goes through very well. And I'm committed to make that happen.
Mark: You have said over the last year or so that you felt Ascend could go it alone. I take it you changed your mind.
Well, I haven't changed my mind. We could go it alone, but the situation was in such a way that all of our customers asked us why don't
you join. We looked at our technologies, we looked at all the synergies that we have, we looked at the shareholder value. That was a
deal that is made in heaven. You cannot change that. You cannot change your mind. You have the complimentary technology and your
customers are pushing you to that, there's no other way that you could do that.
Mark: Mr. McGinn, a customer-driven deal?
Well, in addition to, of course, your advice.
Mark: Yeah, right.
But the fact of the matter is that the strength Lucent has coupled with the strength of Ascend makes us a very formidable player, the
leading player in communications networking. Part of what we're doing here is we combine Ascend with Lucent's data networking
business also creating a new division in Lucent for broadband networks, putting together optical business for optical networking,
communications networking software, which manages these very complex carrier networks and the data networking, the routing and the
switch-routing capability and the software associated with those. And on day one that division alone becomes the largest broadband
business in the world addressing these networks.
Mark: Does this make you a one-stop shop as Cisco?
The fact of the matter is --. Much more so. Larger in this space, much more comprehensive. We're the world's leader in optical today.
Probably, although that's a highly fractionalized market, world leader in communications networking software and now with a combination
of Ascend and as well Lucent's data networking business, put together in this one business. It is by far day one the largest broadband
networking business in the world.
Mark: Mr. Ejabat, in this convergence of -- it's more than just, as I understand it, and please correct me if I'm wrong, because I'm no
technofile, as I understand it it's more than just a convergence of voice and data. It is voice eventually being transmitted in the same
manner as data; that is, in pacts, as I understand it. Is that what's going to happen in the future as far as you're concerned?
That's something called more so IP or packet. And the reason this measure would make lots of sense in that respect. Lucent has great
technology uses circuit switching or voice technology and Ascend has a good technology in routing packets and processing that type of
packet or IP and brings these two companies we will be the leader in providing that technology and providing it platform for the next stage
of the convergence into the technology. Yes, that will happen and probably the company that will make that happen sooner than anybody
else is Lucent and Ascend together.
Mark: Is the shopping spree over? Because you've been on an acquiring binge, but this, of course, is the big one so far.
We've been boringly consistent since the time that we went public in 1996. And we said we're going to invest substantially in organic
growth; that is, our own R&D and channel development. And as well, we will acquire firms for the technology, for the great talent, and for
the customer relationships. We have been doing that. And now today we're doing that additionally with Ascend. And they meet all those
criteria. On Monday we announced the acquisition of Kenan Systems for billing software to service providers, recognized leader in that
last class. And that deal as well, Kenan is accretive in 1999, because we have almost a full year to address that and even more so in the
year 2000. Our deal that we are announcing today with Ascend is neutral, not dilutive in year one, which is very unusual in a lot of these
high-tech deals and accretive in 2000. So, we don't believe that there is a reason to say that we should stop or change our business
plan, which is to remain the leader, extend that lead, and by doing it, by investing in our business organically and as well acquiring
technology and great talent where they're available. And we think we can continue to extend the lead by far in that formula.
Mark: In other words, you're going to be buying more things if you find them?
We think there are good strategic opportunities available as long as they make great financial sense. And we always keep the
shareholder in mind as opposed to simply or solely following a strategic comparative.
Mark: When you say strategic I assume what you're talking about is gaps or weak spots in your product line.
Yes. The marketplace continues to change. Consumers and as well businesses have an insatiable demand for new communications,
networking offers; that is, services available from the service providers or enterprises using this new technology to be able to run their
businesses more efficiently and to create competitive advantage for them. There is no lack of opportunity here. We're talking about a
businessplace for us, including communications-based semiconductors, which is approaching $600 billion in the year 2001. So, we're
not limiting our opportunity. As the largest in the world we're less than 10% market share. So, we see more and more opportunities
emerging, but we are consistently focusing on the highest-growth segments in the marketplace. And you'll see us continuing to do that
with our own internal investments and as well with acquisitions, but we want to make sure that we stay the course in terms of a
combination or the marriage of strategic comparative and financial imperative.
Mark: Are there any cultural issues here?
Yes, we think there are very strong, positive cultural issues we'll were together in California last night. We flew in this morning. And I
addressed a group in Santa Clara.
And I was asked to speculate, if you will, about the notion of an Ascend-Lucent tie-up.
And I did it in an abstract way. Why would it make sense? What's great about Ascend?
We have a great working relationship, because we already OEM Ascend product.
We have a long-term relationship there well work together within that context on bids from major customers around the world. So, we
know how to work together. We have a common language what we speak of. And as well we have a common vision of what the
marketplace looks like and where the technology's going. With those underpinnings and with the fact that Lucent's culture has evolved
dramatically since the time that we were a part of a broader organization to one that focuses on speed and is absolutely intensely
focused on serving customers, we think that's a great combination. So we're, in a sense, a 30 plus billion dollar start-up. And we think
that just happens to be a larger start-up than Ascend.
Mark: Let me take one second and wander off the track to something you mentioned earlier. This Kenan acquisition, yes, it's software. It
seems to be a little bit out of what we would have expected from you. How does it fit into the game plan?
We, as I said, we have a very substantial software business for software that manages networks.
Mark: Right.
And more and more as you look at multiservice networks or multiservice offerings from service providers from wireless and wire line,
customers like service providers want to be able to bill in an efficient way and to deliver a combined bill and provide customer care. And
the software that Kenan has in customer care and billing is center plate for us in terms of the kind of things we would offer to service
providers.
Mark: I see. Okay, it's going further out, but a road would you already taken, but now a little further out.
Very much so. And it's a key item if you think about people don't typically compete on their balance sheet or on their general ledger, but
they have to be able to bill efficiently and effectively to be able to generate and manage their cash flow and manage their earnings. And
this is something that's one of the best companies in the software business for service providers. And we're really honored to have them
join Lucent as we are with Ascend.
Mark: Richard McGinn, thank you very much, CEO of Lucent Technologies. And Mory Ejabat, CEO of Ascend. |
