AT&T; to Purchase Paradyne; Deal to Double Market Sales
American Telephone & Telegraph Co. said today that it would buy Paradyne Corp. for about $250 million in a deal that would nearly double its sales in the highly competitive data communications equipment market.
AT&T; is offering $10.25 a share, sharply higher than the stock’s $5.25 closing price on Friday. When stock trading reopened today, Paradyne shares jumped $4.625 to $9.875.
The company plans to merge Paradyne with its existing data communications business to form a new unit to be headed by John Mitcham, Paradyne’s chief executive. The new unit will have sales of about $450 million, industry analysts estimated.
Paradyne makes a range of products used to transmit computer data over telephone lines and manage data communications networks. AT&T; has said that boosting its position in this field is one of its top priorities.
‘Pretty Good Products’
“For $250 million, AT&T; is getting some pretty good products that will help them leverage their data networking business,” said Jack Grubman, a telecommunications analyst with Paine Webber Group Inc.
Grubman said Paradyne would also give AT&T; access to international markets, especially in the Far East, which AT&T; has found tough to enter. About 20% of Paradyne’s sales are made overseas, he said.
Although its products are considered high quality, Paradyne has not fared well in the data communications business, where tough competition has kept prices low and profit margins thin. It has not turned a profit since 1984. In 1987 it lost $2.7 million on sales of $233 million.
In the first nine months of 1988, Paradyne lost $40.2 million, including charges of $26 million to cover the costs of restructuring its product line and $6 million to settle a lawsuit.
Paradyne’s reputation suffered after it was indicted in 1985 for falsely representing its products in bidding on an $84-million contract with the Social Security Administration.
Paradyne pleaded guilty to conspiracy charges in 1987, leading to fines totaling $1.2 million and the resignation of its president, Robert Wiggins.
An AT&T; spokesman said Paradyne’s new management had put the company back on track and said the acquisition would have a “healthy impact” on AT&T;’s sales of data communications gear.
Industry analysts estimate that sales of data communications equipment account for about $250 million of AT&T;’s total revenues of more than $33 billion.
Paradyne’s board has approved the deal, and AT&T; said it would pay cash for the company. At the end of September, the New York-based telecommunications giant had more than $2.2 billion in cash.
