By Nick Patience
Lucent Technologies Inc finally laid all the rumors to rest yesterday and acquired Ascend Communications Inc for about $20bn in stock. Lucent has been rumored to be interested in buying Ascend almost as soon as Lucent itself spun out of AT&T Corp back in 1996. It has been selling Ascend’s GX 550 ATM core switch since last fall and talks to combine the two firms were believed to have been going on for most of the winter. The respective boards approved the deal on Tuesday and it is subject to shareholder approval on both sides. No problems are expected on that front as it values Ascend at a premium of almost 19% above Tuesday’s closing price. Lucent is buying Ascend for its wide area data networking equipment, in particular its ATM switching products and its portfolio of service provider customers. The acquisition will create a formidable rival to Cisco Systems Inc and the combined Nortel-Bay Networks in the ever-converging fields of voice and data networking. The acquisition will be in the form of a pooling of interests, converting each share of Ascend into 0.825 of Lucent. The $20bn figure is based on Lucent’s closing price on Tuesday of $107.875. Yesterday it closed down $3.375, or 3.1% at $104.50. Ascend closed up $5.375, or 7.2% at $80.3125. Until last October, Lucent was prevented from accounting for acquisitions as poolings of interest because it was less than two years after its spin-out from AT&T. Ascend will become part of a new unit within Lucent, called the broadband networks group, which will also comprise Lucent’s data networking systems, optical networking and communication software groups. The new broadband group will report to Dan Stanzione, Lucent’s chief operating officer, who will also continue to oversee the Bell Labs research division. Lucent’s acquisition of Ascend – its second in three days after Kenan Systems on Monday – is expected to be earnings-neutral this year and accretive in 2000 and 2% to 4% above analysts’ expectations according to Lucent chairman and chief executive Rich McGinn. Many of those analysts apparently believe the effect, although positive in 2000, will be fairly negligible. The Ascend name will disappear after the acquisition closes, which is expected to be around May and there are no plans for job losses at present, although there was plenty of talk of synergies at the press conference in New York yesterday. Much of the questioning was about Lucent’s ability to retain the key personnel at Ascend, a feat the latter notably failed to do when it bought Cascade Communications in 1997. Ascend CEO Mory Ejabat said that Ascend employees were there for the long haul – all except him, that is. Ejabat has pledged to stay at the company during the transition and for an unspecified time after, but made it fairly clear he would be leaving probably this year and plans to go to the beach while working out what he wants to do next. Some 90% of Ascend’s revenues come from selling its data networking gear to service providers and carriers and key customers it brings to Lucent include MCI WorldCom and its UUNet ISP unit, PSINet, Sprint and Williams, among others. Lucent gets about two-thirds of its revenues from that area, says McGinn and it will continue to maintain that split between carriers and ISPs and the enterprise data networking market, where Cisco is legally dominant in the router space, as McGinn put it, and strong in may other areas. McGinn did say, however that the company will look for acquisitions to grow its enterprise business, but will be mindful of shareholder valuation while doing so. The confirmation of the buy-out comes after days of intensified rumors and press reports, in particular one in the Financial Times on Monday. But McGinn was adamant that neither company had disclosed anything to the press, despite the reports being fairly accurate.
