Ascend Shares Descend 22% on Worry Over Cascade Bid

Ascend Communications Inc. shares plunged 22% on Monday amid concern that its $3.7-billion offer for rival networking equipment firm Cascade Communications Corp. is too high and the purchase would hurt earnings.

Ascend’s stock fell $11.25 to close at $40.75 in Nasdaq trading, its lowest close since Feb. 1, 1996. At that price, Ascend’s offer falls to $2.97 billion, or $28.53 per Cascade share, putting the bid just above Cascade’s closing price of $28.375 on Thursday. Cascade stock fell $2 to close at $26.375, also on Nasdaq.

Alameda-based Ascend on Sunday offered a 28% premium for Cascade’s shares, which some investors and analysts said was too much for a company with disappointing sales and earnings.

Ascend said it will pay 0.7 share of its stock for each Cascade share to broaden its product line.

Ascend “shouldn’t have paid any premium for Cascade” and probably made the offer to prevent a competitor from buying it, said John Rutledge, a technology hardware analyst at Loomis Sayles & Co. in Boston.

Westford, Mass.-based Cascade makes frame-relay switches, which are used to transmit data at very high speeds across long distances. That will complement Ascend’s strength in devices that let computers hook up to corporate networks and the Internet. The purchase comes as Cascade announced this week another disappointing quarter, saying its first-quarter earnings will be 14 cents to 15 cents a share, compared with analysts’ estimates of 22 cents. It will be the third straight quarter in which results have been below expectations.