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Ascend to acquire Stratus
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August 3, 1998: 12:15 p.m. ET
Companies to combine for $822M in stock, merge data, telecom technology
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NEW YORK (CNNfn) - Ascend Communications Inc. said Monday it will acquire Stratus Computer Inc. in a stock deal valued at $822 million, a move that further exemplifies the integration of telecommunications and Internet technology.
Under terms of the deal, which both companies' boards have approved, Ascend will exchange 0.75 Ascend share for each of the roughly 24 million shares of Stratus. Ascend said the transaction values Stratus at $33.35 a share.
Based on Friday's closing price, the deal represents a 15 percent premium for Stratus shareholders.
The deal sent Ascend (ASND) shares down 13/32 to 44-1/16 in late-morning trading. Stratus (SRA) shares gained 3-1/16 to 31-15/16.
Alameda, Calif.-based Ascend makes computer networking equipment. Ascend said it made the acquisition because Stratus develops technology that allows telephone carriers to offer services such as caller ID and call forwarding over data networks using Internet technology.
With voice and data networking converging because of Internet technology, computer networking and telecommunications companies have been looking for ways to expand their reach.
Rumors of the deal sent Ascend shares spiraling down more than 7 points in Friday trading, mostly because analysts viewed Stratus' product focus as being incompatible with Ascend's. Stratus also makes high-end computers designed to operate 24 hours a day.
But Stratus also develops high-end computers used by telephone carriers to run the Signaling System 7 (SS7) software that is at the heart of the voice network. That technology, analysts said after the deal was announced, will better enable Ascend to offer enhanced telecommunications services, such as simultaneous voice and data.
"I think the technology Ascend has acquired gives them the lead over existing data networking companies in offering full-featured SS7 technology," said Christin Armacost, an analyst at Everen Securities. "Stratus offers SS7 technology on a high-end computer platform, whereas Cisco offers more low-end signaling."
After the deal is completed, Ascend said, it will sell Stratus' non-telecommunications businesses.
Lucent on the horizon?
The Ascend-Stratus deal is the latest move by a leading data networking company to offer enhanced telecom services. In June, Canada's Northern Telecommunications Ltd. (NT) acquired Bay Networks Inc. (BAY) for $9.1 billion in stock.
Also, rumors have been swirling for months that Lucent Technologies Inc. (LU) will acquire Ascend sometime in the fall.
Some analysts said Monday's deal will have little effect a potential Lucent buyout.
"For the same reason Ascend wanted Stratus' technology, Lucent is also interested," said Paul Johnson, an analyst at BancAmerica Robertson Stephens.
Armacost, however, said she is skeptical of any potential Lucent-Ascend merger.
"I do expect Lucent to make a big acquisition in the telecom sector," she said. "If you look at the deals Lucent has made, they're getting technology that directly competes against Ascend. They don't need Ascend. They need a distribution channel for those products."
Ascend said it expects to take a fourth-quarter charge of $300 million to $350 million for research and development, plus an $80 million to $100 million charge to cover the costs of 350 job cuts previously planned at Stratus. Those charges also will include an additional 150 cuts related to the acquisition.
Stratus said it won't take its previously announced $20 million restructuring charge in the third quarter for the 350 job cuts.
Ascend President and Chief Executive Officer Mory Ejabat will retain his titles. Bruce Sachs, Stratus president and CEO, will be executive vice president and general manager of the carrier signaling and management business unit and report to Ejabat. 
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Ascend
Stratus Computer
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