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Alcatel comes to Dallas
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June 4, 1998: 6:47 a.m. ET
French telecom acquires DSC for $4.4B, gaining high-tech U.S. toehold
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NEW YORK (CNNfn) - France's Alcatel Alsthom said early Thursday it had agreed to acquire Texas telecommunications equipment maker DSC Communications in a $4.4 billion stock deal that will give the French behemoth a major toe-hold in the American high-tech marketplace.
Under the agreement, which has been unanimously approved by the boards of both companies, DSC shareholders will receive 0.815 shares of Alcatel American Depository Shares, for each share of DSC they hold.
Converted into ordinary Alcatel shares, each DSC share would be worth 0.163 shares, the companies said in a joint statement.
The deal comes a day after two other telecom equipment specialists, Tellabs Inc. and Ciena Corp., announced a combination of their own.
The combined entity will be based in Dallas, the location of DSC's current headquarters, with 7,000 people employed in the Dallas area and additional operations in North Carolina and California.
Paris-based Alcatel, which posted $31 billion in 1997 sales, said it plans to fold DSC into its U.S. telecommunications equipment business, Alcatel Network Systems Inc.
Alcatel said it expected the deal to have little effect on its earnings in 1999, after taking into account expected cost savings. However, the purchase is expected to be accretive to its bottom line after that date.
Alcatel predicted the combined business will realize annual cost savings of $200 million by 2000.
"I want to emphasise that this combination is about growth, not just cost cutting," said Alcatel chairman and chief executive officer Serge Tchuruk.
"As a result of this combination, DSC employees will have greater career opportunities both in the U.S. and internationally," he added.
DSC reported annual revenues of approximately $1.6 billion in 1997. Alcatel, one of France's largest companies, operates in more than 130 countries, providing backbone networks to computer terminals. The company hopes to apply its expertise in helping DSC better develop quick and reliable Internet-related data services.
The value of the deal is based upon the 125 million shares of DSC common stock outstanding, and Alcatel's ADS, which closed on the New York Stock Exchange Wednesday at $47 7/16.
DSC's stock [DIGI] closed Wednesday at $19 11/16 on the Nasdaq stock market, but was up slightly in pre-open trade Thursday. Alcatel [ALA] shares lost 2-1/2 percent of their value as investors tried to piece together the ramifications of the deal.
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