Lucent Seen Near Ascend Deal
Lucent Technologies is reportedly on the verge of acquiring Ascend Communications for $16 billion, a deal that could give the combined entity a bigger edge on main rival Cisco Systems.
The Financial Times of London reported Monday that Lucent could announce a deal as early as Wednesday. Negotiations have been ongoing for several weeks. Lucent officials declined comment Monday morning.
The deal, which has been rumored for months, would combine Lucent's expertise in traditional phone networks with Ascend's expertise in data networking equipment used to link computers. With data fast becoming the main form of traffic over phone lines - supplanting voice - industry analysts expect a convergence of the two kinds of networks.
Ascend (ASND) stock rose 3 3/8 to 74 13/16 in morning midday trading. Lucent (LU) fell 2 9/16 to 112 9/16.
Separately, the telecommunications equipment maker on Monday said it's buying Kenan Systems, a billing and customer care software maker, for $1.48 billion in stock. Under the agreement, Lucent will exchange 12.88 million shares of Lucent for all of the equity in privately-held Kenan.
Increasingly, traditional equipment makers such as Lucent and Nortel Networks (NT) are moving to offer products based on so-called Internet Protocol or asynchronous transfer mode, superior digital-based modes of transferring information.
Data networkers such as industry leaders Cisco (CSCO), meanwhile, have been expanding their product lines to handle the needs of customers who still partly rely on traditional circuit-based systems.
The goal: to become the primary, if not sole, provider of client's networking needs. The acquisition of Alameda, Calif.-based Ascend, a strong competitor to Cisco, could give Lucent a leg up. Ascend is the fourth largest maker of data equipment.
While Lucent already is the biggest maker of telecom equipment in the United States, it's facing a stiff challenge from Cisco in the battle to become the dominant equipment provider in the dawning new era of Internet-based networks.
An Ascend deal could trigger another wave of mergers in the rapidly changing equipment industry.
The takeover terms appear to be set at a premium to Ascend's $15.5 billion market capitalization. Lucent ended down 1 1/4 to 115 1/4 ahead of the news Friday. Ascend closed up 1 3/8 to 71 7/16.
In buying Kenan Systems, Lucent was looking for an entry into software sales, said spokesman Dan Coulter, who termed the acquisition "a passport into software sales, a real crucial area for service providers going forward."
Lucent expects the billing and customer care software market to grow 25 percent a year to $26 billion by 2000.
Kenan is expected to post revenue of at least $175 million for calendar 1998, Coulter said. The Cambridge, Mass.-based company has been "doubling its revenue every year."
Lucent wants to offer service providers not only the equipment, but a single software package needd to run the a system, he said.
Written By Emily Church, CBS MarketWatch