PARIS — Alcatel, Europe's second-largest phone equipment maker, said Wednesday that it agreed to buy Canada's Newbridge Networks Corp. for $6.5 billion in stock in a deal that could help it catch up with Lucent Technologies Inc. and Cisco Systems Inc.
Newbridge would give Alcatel equipment that delivers voice, data and video on a single network. Phone companies such as Pacific Bell parent SBC Communications Inc. prefer the switches Newbridge makes--in the asynchronous transfer mode, or ATM--to routers for moving big quantities of information such as e-mail.
"This is a bet Alcatel had to take given Newbridge was the last available player in the sector," said ABN Amro analyst David Seban-Jeantet, who rates Alcatel shares a "buy."
Alcatel would exchange 0.81 American depositary share for each Newbridge share. It would also take on $292 million in debt. The swap values the Kanata, Canada-based company at $35.54 a share, 1.5% more than its Tuesday close on the New York Stock Exchange. In trading Wednesday, Alcatel's U.S. shares closed down 8%, or $3.81, at $43.94, and Newbridge shares fell $2.38 to $32, both on the NYSE.
Lucent vaulted into the No. 1 spot in ATM sales with last year's purchase of Ascend Communications Inc. for $25.2 billion in stock. Cisco gained ATM technology with its stock acquisition of StrataCom Inc. for $4.5 billion in 1996.
Alcatel expects cost savings of $150 million in 2001 and $230 million a year after that. The acquisition would add 4% to net income as early as 2001, Alcatel said.
"The price is justified given the synergies Alcatel expects by 2001," Seban-Jeantet said.
Newbridge would be combined with Alcatel's Carrier Data Division to form a unit with about 10,000 employees. The merged group would be based in Canada and have sales of more than $2.5 billion a year, Alcatel said. It would be led by Newbridge President Pearse Flynn.
Flynn said in an interview that he expects to cut 200 to 300 jobs in the combined division as he eliminates overlap in areas such as finance and purchasing. Newbridge cut 700 jobs, or about 10% its work force, in November.
Paris-based Alcatel, second to Ericsson in Europe, already has spent $8.5 billion in the last 17 months buying companies that make equipment and software for data networking.
Acquisitions such as DSC Communications Corp. in 1998 helped make it a powerhouse in equipment that boosts the capacity of copper phone lines. DSC also gave the French company a greater share of the U.S. market, in which its sales are dwarfed by those of Lucent, Nortel Networks Corp. and Cisco.
Other purchases included Xylan Corp. for $2 billion and Packet Engines Inc. for $315 million.
Acquiring Newbridge would move Alcatel into a market that's growing faster than sales of its traditional voice switches. ATM sales industrywide for networks will climb 36% this year to $5.3 billion, according to Dell'Oro Group Inc., a market research firm.