PairGain’s Merger Denial Triggers Flurry, Share Drop

PairGain Technologies Inc. shares fell 9.2% on Wednesday after the Tustin telecommunications equipment maker said it isn’t considering potential merger options, dampening speculation that it is a near-term takeover target.

PairGain, which sells products that speed Internet access over standard copper wires, a technology known as digital subscriber line service, fell $1.75 to $17.38 in trading of 11.4 million shares, or more than four times the three-month daily average. PairGain was the 10th most actively traded stock on U.S. markets.

In an interview on CNBC, Chief Executive Charles Strauch said acquisitions aren’t a “particularly good focus” for PairGain at this time.

But he added that the company isn’t opposed to considering offers from the “right partner.”

The statements came after PairGain shares rose 16% Tuesday on speculation that the company is a likely takeover target.

“The stock started to take on a life of its own [Tuesday] as people pushed shares up on short-term speculation,” said Piper Jaffray analyst Conrad Leifur, who has a “strong buy” recommendation on PairGain.

Officials at PairGain, which met with shareholders Wednesday, didn’t return phone calls.

Leifur said combinations with PairGain that would “make strategic sense” include Lucent Technologies Inc., ADC Telecommunications Inc. and Advanced Fibre Communication Inc.

Strauch said PairGain is more interested in concentrating on business and that there appear to be signs of relief from stiff pricing competition in the industry.

PairGain has been hurt by lower prices resulting from competition with Adtran Inc.

“Now that the dark cloud [of pricing] has passed, the company is trying to get products out the door and increase revenue,” said Aydin Tuncer, an analyst at Standard & Poor’s Equity Group, who said he may now consider upgrading his current “hold” rating.

“I’ve been waiting for [PairGain] to pop out of its funk,” Tuncer said. “Adtran has been very aggressive on pricing.”

Strauch declined to comment on how the proposed $48-billion acquisition of Tele-Communications Inc. by AT&T; Corp. could affect PairGain.

“I think it remains to be seen just what’s going to happen with all these large mergers,” he said.