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Ascend drops Stratus unit
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January 11, 1999: 4:23 p.m. ET
Sale of enterprise computer division is precursor of other non-telecom deals
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NEW YORK (CNNfn) - Ascend Communications Inc., amid speculation that it's about to link up with Lucent Technologies, said Monday it has sold the enterprise computer division of Stratus Computer, a company it acquired in October.
The unit was sold to a group led by Investcorp, Ascend says. It will retain the Stratus Computer name and market fault-tolerant computer platforms for enterprise markets. Terms of the transaction weren't disclosed.
Ascend (ASND), a telecom network equipment maker, says the transaction is one of several in the works involving the non-telecom assets of Stratus. Other transactions involving Stratus' TCAM and S2 units are expected later in the month.
"Our strategy to divest all related non-telcom Stratus business units is progressing on plan, enabling us to strengthen our focus and leadership in providing solutions for the next generation public network," Ascend president Mory Ejabat said.
Published reports Monday indicate that Lucent is close to announcing a more than $16 billion takeover of Ascend. The deal has been the subject of speculation for months, and could be announced as soon as Wednesday.
The buyout would create a company able to challenge market leader Cisco Systems (CSCO)), currently Ascend's chief rival.
"I think it makes sense for Lucent because so far their forays and their data network markets have not born fruit," said Rajiv Chaudhri, president of Digital Century Investors. "Meanwhile, Cisco continues to charge ahead and Lucent needs to do something and Ascend has in the last year established itself as a very strong pier in the A-T-M networking markets and with the carriers in general."
Lucent Technologies, with a market value of around $152 billion, is the world's biggest maker of telecommunications equipment. The company, spun off from AT&T Corp. in 1996, has made several smaller acquisitions in recent months to move into the data networking business, including its acquisition of Yurie Systems Inc. for $1 billion last May.
Earlier Monday, in fact, Lucent said it will buy Kenan Systems Corp., a privately-held publisher of third-party billing and customer care software, for about $1.48 billion in stock
Analysts have been watching Lucent closely for new acquisitions since October, when the company was released from a two-year restriction that prevented it from pursuing acquisitions using the pooling-of-interests accounting method.
Purchases made using pooling-of-interests do not hurt earnings as much as a straight purchase, because there is no goodwill that must be written off against future profits.
Ascend, valued at nearly $16 billion, is the fourth-largest maker of computer networking gear.
The companies were expected to meet Tuesday to hammer out details of the deal, which could be announced as early as Wednesday, sources said. One industry analyst said Lucent could pay more than $80 a share in stock for Ascend.
"Certainly Lucent does not want to overpay, they do not want to have a deal that is too dilutive to their earnings," said Argus Research analyst David Toung. "But at the same time, acquiring Ascend would get them to a position much faster in competing against Cisco."
Ascend stock was up 5-1/2 Monday at 76-5/16 on the Nasdaq. 
--from staff and wire reports
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Ascend Communications
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