PARIS -- Alcatel Alsthom SA, the fourth-biggest maker of telephone equipment, agreed yesterday to buy DSC Communications Corp. for about $4.4 billion in stock, adding products that increase the amount of voice and data a phone network can carry.
Shareholders of Plano, Texas-based DSC will receive .815 of an Alcatel American depositary receipt, or $35.40 a share, an 80 percent premium. DSC stock rose $7.8125 to $27.50 in trading of 46.2 million shares, making it the most active U.S. stock yesterday.
Paris-based Alcatel is competing in the United States against No. 1 Lucent Technologies Inc. and Northern Telecom Ltd. Alcatel and other companies are buying smaller rivals to increase the products they can offer the regional phone companies and others.
"Alcatel is acquiring a complementary product line and enhancing their marketing position with the Bells," said Conrad Leifur at Piper Jaffrey.
DSC will boost Alcatel's share of the U.S. phone-equipment market, a priority for Chief Executive Serge Tchuruk. In March, Alcatel said it would cut 5 percent of its European staff, or about 8,000 employees, and focus on expansion in the United States.
Alcatel fell 9.5 percent in France.
Alcatel is acquiring DSC as the U.S. company struggles. DSC had a first-quarter loss of $30.1 million, or 25 cents a diluted share, and revenue fell 9.1 percent to $314.8 million from the year-earlier period. Previously, DSC had said it expected first-quarter sales of $340 million to $360 million.
Alcatel is "buying a company that's worn out and poorly run and will take at least 18 months to turn around, and that's 18 months lost," said Laurent Tignard, who manages $8 billion at Axa Asset Management in Paris.
Alcatel will create 20 million new shares to buy DSC, increasing the number of shares outstanding by 12 percent. Alcatel will assume $40 million of net debt, the difference between DSC's $600 million in long-term debt and its cash.
The companies said their boards have approved the acquisition. It needs approval by DSC shareholders and regulatory authorities. Alcatel and DSC expect to complete the purchase in four months.
Tchuruk declined to give specific forecasts for the combined businesses' market share.
The merger is expected to create savings of $200 million a year starting in 2000. Tchuruk didn't discuss the effect of the acquisition on this year's results.
Last year's combined revenue of DSC and Alcatel's U.S. telecommunications equipment unit Alcatel Network Systems Inc. was about $3 billion. Alcatel said it would combine DSC with ANS. In other divisions, Alcatel had $1.4 billion of sales in the United States for cables and components such as fiber-optic cable and antennas.
Tchuruk said DSC is a perfect fit with ANS, which is a few miles away and has often tried to recruit the same engineers as DSC.
In addition to access equipment, which gets voice and data from a telephone or Internet user to the network, DSC is in the niche markets of mobile and transit switches. In the United States, Alcatel is mainly involved in transmission equipment, which sends traffic from a switch across the network to the end user.
Pub Date: 6/05/98