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Ascend to spin off Stratus

Network equipment maker Ascend Communications is spinning off its Stratus Enterprise Computer Division to the division's management team.

Network equipment maker Ascend Communications announced today it is spinning off its Stratus Enterprise Computer Division to the division's management team which will form a private company.

The Stratus management team, which is partnering with an investment firm called Investcorp, is acquiring the division for a sum of between $100 million and $150 million, said Steve Kiely, acting president of the current division and president and chief executive of the new Stratus.

The new company will be renamed Stratus Computer, will include the division's 950 employees, and will have an expected yearly revenue of about $275 million, according to Kiely. "Ascend's intention was to keep the business whole for the purpose of supporting the base of customers outside of telecom," he said.

Stratus makes high-end computers, which are designed to run 24-hours-a-day with no failures, for the banking and healthcare industries, and emergency services agencies.

The spin-off has been expected since Ascend purchased Stratus in August in a deal worth about $822 million. At the time, Ascend announced it bought Stratus for its telecommunications technology and that it planned to divest itself from Stratus's nontelecommunications businesses.

The Alameda, California-based networking company has since used Stratus's Signaling System 7 switches and other technology to create the Ascend SS7 Gateway, a product that helps relieve congestion on the phone network.

Ascend is currently negotiating with several firms to sell Stratus's two other nontelecommunications units, which make software for the banking and securities industries, said Ken Fehrnstrom, Ascend's senior vice president of business development. The company expects to sell the subsidiaries, named S2 and TCAM, by late January, he said.

Fehrnstrom said Ascend had hoped to sell off the nontelecom Stratus businesses for at least $150 million. "We expect to meet our financial target," he said.

Analyst Craig Johnson, of Pita Group, in Portland, Oregon, said the main issue now is whether investors will be satisfied with the amount Ascend will receive from the sales. "They originally told Wall Street they expected between $150 million to $250 million for the three pieces they expected to spin off," he said. "They're in the target range. The real issue is: does Wall Street think they got the right amount for the deals?"

Fehrnstrom, of Ascend, added that his company and Stratus Computer will continue to jointly develop products. Ascend's sale of Stratus is expected to close in the 1999 first quarter.