Ascend Communications Inc duly announced its agreement to acquire Stratus Computer Inc yesterday, in a stock-for-stock exchange deal worth $822m (CI No 3,466). But Ascend is only interested in the SS7 Signalling System 7 software, operating systems software, fault-tolerant technology and its customer base of large telecommunications companies. The rest, including the company’s Enterprise Computer business hardware unit and the two financial and enterprise system software units, will be set up as separate subsidiaries and sold off by the end of the year, Stratus said. Ascend gets software for directing and managing traffic across voice networks, which it can combine with its own switching products for internet networks. Ideally the added intelligence of Stratus’ telecoms software developed for voice should put Ascend’s products for handling traffic across integrated voice and data networks on the road to competing with the likes of Cisco Systems Inc and Northern Telecom Ltd, which have already taken steps to develop equipment for new integrated networks. One plus for Ascend is that there is little crossover between Stratus’ service control point software which provides the brains of the network, and Ascend’s own lower-end SS7 signaling gateway software for use by internet service providers. But even if the products fit well together and the acquisition gives Ascend access to carrier customers, Ascend is still acquiring a company in some financial difficulty. Stratus last month announced it would lay off 400 staff under a $20m restructuring plan (CI No 3,460). And its plan to pare down its new buy might also cause some difficulties. According to Stratus spokesperson Roderick Randall, it is unlikely that Ascend will be able to divorce Stratus’ hardware platform and its telecoms software. Randall believes that Ascend will hold on to the intellectual property rights of Stratus’ hardware and jointly manufacture it, because of the interdependence of the hardware and software. You can’t cut the baby in half, he said. Stratus had been selling its software, which runs on Hewlett-Packard Co’s HP/UX Unix, as a stand alone service control point, which complemented equipment supplied by companies such as Alcatel SA, Siemens AG and Nortel. The hitch, however, was that companies such as Alcatel were quite capable of providing similar software functions as part of an integrated solution, making it harder for Stratus to compete. Under the agreement, each share of Stratus will be exchanged for 0.75 shares of Ascend, which will have a transaction value of $33.35 per share. The combination will be accounted for as a purchase and is anticipated to be accretive to Ascend’s earnings in 1999. Although the price Ascend paid is up on Stratus’ recent price, it falls below Stratus’ high of $60, according to Merril Lynch.
