Ascend descends on US rival in $3.7bn deal

The merger mania in the US network computers industry continued yesterday when Ascend Communications agreed to buy its smaller rival Cascade Communications in a $3.7bn (pounds 2.31bn) deal.

It follows last month's $6bn link-up between 3Com and US Robotics and last year's $4bn takeover of Stratacom Corporation by Cisco Systems, the market leader.

However, Ascend's share price plunged $10.50, or about 20 per cent, to $41.50 , knocking $650m from its original offer, in heavy trading on the Nasdaq market. Cascade's share price shed $1.37 to $27, well below the $35.40 shareholders were to have received.

Analysts said the market for equipment that links other computers has been growing quickly due to the rapid expansion of the Internet and private corporate networks that link up with the World Wide Web. The growth of the leading companies such as Cisco has increased pressure on other players to compete for economies of scale in the industry's shake-out.

The enlarged company will retain the Ascend name as well as its headquarters in Alameda, California while Cascade said it did not expect any job cuts at its main base in Westford, Massachusetts.

Ascend recorded sales of $549m last year while Cascade's sales were $341m. Under the terms of the share-swap Cascade shareholders will receive 0.7 Ascend shares for each of their existing Cascade shares.

Ascend said the acquisition will be one of the largest ever in the rapidly growing field of network computing. The group will take an as yet unspecified one-off charge against its third-quarter profits to cover the merger-related costs.

Ascend plans to re-organise the Cascade business into four divisions: multi-media access products: and remote, access and core switching products. Cascade said yesterday it expected its first-quarter earnings to be 14- 15 cents.