Ascend to Acquire Stratus for $822 Million
Ascend Communications Inc., which sells computer switches that meld data and voice communications, said Monday it will acquire Stratus Computer Inc. in an $822-million deal that would create a powerful supplier of Internet-based telecommunications equipment.
Alameda-based Ascend said it plans to create integrated voice and data network products combining its data networking equipment with Stratus computers, which control key functions at the heart of much of the national phone network.
Stratus computers could act as a link between incompatible circuit-switched voice networks and data networks that communicate on different, but more efficient, Internet standards, Ascend officials said.
“We are going to be able to bridge the voice network and the Internet [data] network,” Ascend Chief Executive Mory Ejabat said in a phone interview.
Integrated voice and data products would give Ascend the lead in what Ejabat said has been estimated will become a $10-billion market, one that is almost exclusively served by traditional telecom equipment suppliers, such as Lucent Technologies Inc. and Northern Telecom.
Ascend officials said they expect the deal to close before the end of the year, perhaps as early as October.
After the merger is completed, Stratus, a Marlboro, Mass.-based maker of fail-safe computers, would refocus on supplying phone companies with network switching equipment, the faster-growing half of the company’s business--which generated total revenue of $688 million in 1997.
To eliminate potential distractions, Ascend said it plans to divest Stratus operations that supply computer systems to banks, brokerages and other corporate clients by the end of 1998.
Under the terms of the deal, each share of Stratus would be exchanged for 0.75 share of Ascend. Based on Ascend’s closing price Friday, Stratus shareholders would receive $33.35 per share. That is a premium of $4.60, or 16%, above the closing price of the stock Friday, and a 50% premium to the $21.88 share price last Tuesday--before rumors began circulating among investors that a deal was in the works.
Ascend’s stock rose $2.34 to close at $46.81 on Nasdaq after a $7 sell-off Friday in anticipation of the deal.
Stratus gained $4.88 to close at $33.75 in New York Stock Exchange trading.
Officials of the two companies said the merger would be accounted for as a tax-free purchase that is expected to be accretive to Ascend’s earnings in 1999.
