Lucent Technologies (NYSE: LU) surged 18 percent Wednesday after it announced plans to spin off its PBX, SYSTIMAX structured cabling and LAN-based data businesses to form a new company in the hot area of enterprise networking.
Shares in Lucent were up 10 7/16 to 69 15/16. The company's stock has cooled down since it reported first quarter earnings in line a profit warning.
The spin-off news was a welcome dose of good news and prompted SG Cowen to upgrade Lucent to "buy" from "neutral."
The separate company, which will focus on the enterprise networking market, will start out with an $8 billion business and a customer list that includes more than 90 percent of Fortune 500 companies, Lucent said. The new company, which has 34,000 employees worldwide, hasn't been named yet.
Through the new venture, Lucent plans to concentrate on fast-growing areas like optical networking, Internet infrastructure, wireless, semiconductors, optoelectronics, Web-based enterprise solutions linking private to public networks, and professional design and consulting services for service providers and enterprises. Lucent also plans to partner with service providers to create an enterprise company will rank No. 1 or 2 in nearly every market in which it competes.
"We are sharpening Lucent's focus and creating another leading company to serve business customers," said Lucent CEO Richard McGinn, in a statement.
Donald Peterson, currently Lucent executive vice president and CFO, will become president and CEO of the new company. Henry Schacht, former Lucent chairman and a current member of the board of directors, will become chairman of the new company.
After the spinoff, each company will have its own brand, board of directors and R&D organizations. The spinoff, which was approved by Lucent's board of directors, will be through a tax-free distribution of shares, and should close by the fourth quarter of 2000.
Lucent said the new enterprise company will take a one-time charge for restructuring expenses.
Lucent's enterprise business is growing faster than most of its key markets, including voice, messaging and call center businesses. The new company will include Lucent's core switching business for enterprises, the latest Internet call center technology, conferencing and collaboration systems; SYSTIMAX structured cabling systems, and remote management services.