NEW YORK (CNNfn) - As expected, Lucent Technologies and Ascend Communications confirmed their plans Wednesday to merge in a $20 billion deal that will create a formidable competitor in the voice and data networks business.
Under terms of the deal, each share of Ascend will be converted into 0.825 share of Lucent.
Based on Lucent's closing price of 107-7/8 Tuesday, the merger is valued at about $89 a share, paying Ascend holders a 19 percent premium over its closing price Tuesday of 74-15/16.
Lucent, a New Jersey-based telecommunications equipment-maker, said the deal will be neutral to earnings this year and accretive thereafter.
Following the announcement, which had been expected for days, shares of Lucent (LU) edged down 4-1/16, or nearly 4 percent, to 103-13/16 on the New York Stock Exchange.
Ascend (ASND), a computer networking firm, saw its stock jump 5-3/8, more than a 7 percent gain, to 80-5/16 after the announcement.
The merger is expected to close in Lucent's fiscal third quarter, which ends June 30. It will be accounted for as a pooling of interests.
Calling the two companies a "perfect match," Lucent Chairman and Chief Executive Rich McGinn said Ascend was an "obvious" choice as a merger partner. (181K WAV or 181K AIF)
"Our broadband networks group, powered by Bell Labs, will harness many of the capabilities that deliver what our customers are demanding today and, as well, in next generation networking," he said.
McGinn further noted that Lucent plans to invest more than $4 billion in research and development with Bell Labs this year alone, and said the company will continue exploring "new opportunities" with other companies that could help Lucent grow.
Growing convergence of traditional voice networks and high-speed data networks has meant that Ascend and Lucent compete against each other far more.
Ascend is seen as having the edge in technology, while Lucent has the sales force and financial clout to push Ascend's products to a far broader customer base.
The buyout will create a company large enough to take on market leader Cisco Systems (CSCO).
Wall Street, however, seems less than concerned. Shares of Cisco Systems dipped just 1/16 to 98-3/16 on the Nasdaq after the proposed merger was announced.
But analysts seem to be taking a more cautious look at the company, facing new competition.
Gruntal & Co. Wednesday downgraded Cisco's stock to hold from buy following the news.
According to the companies, Ascend Chief Executive Mory Ejabat will remain with Lucent for a transition period to ensure a successful integration of two companies.
At the same time, Lucent will create a new unit, the broadband networks group, which will consist of the Ascend organization and Lucent's data networking systems, optical networking and communications software groups. The unit will be led by Lucent Chief Operating Officer Dan Stanzione, Lucent said.