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CABLETRON BECOMES “TEMPTING TAKEOVER TARGET”

Cabletron Systems Inc may be forced to make further cuts to get a grip on its problems and could turn into an attractive take-over target, according to analysts. On Tuesday, Cabletron said it would spend up to $30m restructuring the company in a move that axed 600 jobs worldwide (CI No 3,313). Analysts said this was a step in the right direction – but further action will be needed. We don’t think the restructuring will be deep enough, said Gina Sockolow, an analyst at Schroder & Co. There’s $80m in excess inventory and $80m of excess receivables that have to be written down and $30m is not enough to cover it. We think that a lot of good things are happening at Cabletron but we are afraid that there will have to be another restructuring charge. Cabletron said that its restructuring will lead to annual savings of $50m-$60m. The amount of cost savings looks bigger than what I expected, so that’s good, said Noel Lindsay, analyst at DMG Technology Group. But the mere fact that they have to lay people off is, of course, bad because it tells you that the problems are not likely to be short-term and anomalous. They’re probably enduring and that’s why they have to make these changes. Lindsay predicted the move would make Cabletron a tempting takeover target. By lowering their costs significantly, this could considerably improve their profitability and make them a less dilutive acquisition, he said.

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CBR Staff Writer

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