PARIS -- Telecom equipment maker Alcatel unveiled on Wednesday a long-flagged deal to buy Canada's Newbridge Networks Corp. in a move to boost North American sales and improve its networking capability.
Under the terms of the merger, agreed to by both companies' boards, Newbridge shareholders will get 0.81 of an Alcatel American Depositary Share for each of their own shares, valuing the deal at $7.1 billion.
This values Newbridge shares at $39, based on Alcatel's ADS closing price of $48 1/8.
To finance the deal, Alcatel fianance director Jean-Pierre Hallbron said the company would issue new shares equivalent to 17.6 percent of its current capital.
The issue of around 35 million shares will be completed by the end of June. Worth approximately 8.1 bilion euros at current share prices, it will increase the company's theoretical market value to around 54 billion euros.
There has been widespread speculation for several weeks that the French firm was the lone suitor of the Ottawa-based networking specialist, which put itself up for sale in November after a string of disappointing results.
Newbridge was seen as being too small to compete with industry heavyweights such as Lucent Technologies Inc., Cisco Systems Inc. and Nortel Networks, and the merger will also bolster sales at Alcatel's own data transmission division.
Alcatel shares were up 0.63 percent at 239 euros in a volatile Wednesday morning session, which saw them jump as high as 249.5 euros then slip as low as 235.0 euros.
However, the shares have come under pressure in recent days on speculation that a Newbridge deal would dilute earnings and be risky given the fact that the Canadian firm has issued six profit warnings in the last 10 quarters. The shares hit a year high of 284.9 euros on February 4.
A boost to earnings
However, Alcatel Chairman Serge Tchuruk said the deal, which gave Newbridge shareholders a premium of 11 percent, would improve Alcatel's earnings slightly this year and bring substantial returns, after goodwill writedowns, next year.
The acquisition combines Alcatel's position in fast Internet access with Newbridge's strong ATM multiservice capabilities. Newbridge will merge with Alcatel's Carrier Data Division to form the new Carrier Internetworking Division, headquartered in Canada.
The move will ramp Alcatel's expected sales in this division to $2.5 billion from $1 billion.
ATM (asynchronous transfer mode) technology enables switching between voice and data transmission and is expected to be used for the next five to 10 years before being replaced by Internet Protocol technology for combined voice and data.
Alcatel said its earnings forecasts included $150 million of expected cost savings in 2001.
Wary investors have recently begun to show more faith in Alcatel. Its shares have recovered from a 68-euro low in October 1998 after a surprise profit warning stunned investors and wiped more than 40 percent off the firm's value in one day.