Advertisement
YOU ARE HERE: LAT HomeCollections

Lucent to Buy Ascend in $20.3-Billion Deal

Telecom: Purchase would create a company providing complete voice and data systems.

January 14, 1999|From Times Staff and Wire Reports

As expected, Lucent Technologies Inc., the top maker of phone equipment, agreed to buy Ascend Communications Inc. for $20.3 billion in stock to expand into the fast-growing Internet equipment industry.

The move would create one of the few companies that could lay claim to being a provider of complete voice and data systems--widely considered a critical competitive advantage for attracting the business of telecommunications carriers and large companies.

Murray Hill, N.J.-based Lucent would swap 0.825 share for each share of the No. 4 network equipment maker. The exchange values Alameda, Calif.-based Ascend at $89 a share based on Lucent's price Tuesday, a 19% premium over Ascend's close.

Lucent needs Ascend's powerful switches that direct Internet traffic to compete with top networking company Cisco Systems Inc. and the Ontario, Canada-based telecom giant Nortel Networks. Lucent's 18th purchase in two years and second this week would vault the company into the fastest-growing segment of the $200-billion-a-year telecommunications equipment market.

On Monday, Lucent agreed to buy Kenan Systems, a private firm that makes third-party billing and customer-care software, for $1.5 billion.

Lucent Chief Executive Rich McGinn called the tandem takeovers in one week "serendipity," but predicted in an interview with The Times that the company will continue to make acquisitions to complement growth generated by developments from its Bell Laboratories division. Some analysts predict Lucent's next targets will be overseas, where the company needs to beef up its operations.

"We're going to invest heavily in the higher-growth segments. That means software, data networking, as well as in our microelectronics business and wireless," McGinn said. The purchase, expected to be completed in the fiscal third quarter ending June 30, won't affect earnings this year. It's expected to boost Lucent's fiscal 2000 profit 2% to 4% above current estimates, which range from $2.40 to $2.80, according to analysts polled by First Call.

Lucent shares fell $3.63 to close at $104.25 on the New York Stock Exchange, and Ascend gained $5.38 to close at $80.31 on Nasdaq.

Melding Ascend into Lucent's business won't be easy, some analysts said. The distraction of putting the companies together could give Cisco an edge in winning phone company customers.

Ascend Chief Executive Mory Ejabat will stay only for "a transition period," Lucent said.

"This is going to allow Lucent to jump into a new game and go head-to-head against Cisco," said Atlanta-based telecom analyst Jeffrey Kagan.

Cisco executives took the deal in stride, insisting that while the Ascend acquisition gives Lucent a boost in asynchronous transfer mode, or ATM, and remote access technology, it still doesn't add to its arsenal of Internet technology--an area San Jose-based Cisco leads.

Nortel Chief Executive John Roth acknowledged the strength of Ascend's switching products, but said he expects to be able to move more quickly than Lucent in bringing end-to-end networks to large telecom carriers and corporations.

On Wednesday, Nortel announced changes in manufacturing and order fulfillment services that will eliminate 8,000 employees, or about 10% of its work force. Some of those jobs will be absorbed through attrition or retraining, the company said.

Nortel shares closed unchanged at $53 on the NYSE, and Cisco shares fell $2.25 to $95.88 on Nasdaq.

Advertisement
Los Angeles Times Articles
|
|
|