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Tech Industry

High-speed modem merger

Westell Technologies announces plans to acquire Amati, boosting the emergence of fast-speed modem technology used over standard phone lines.

Westell Technologies (WSTL) today announced plans to acquire Amati (AMTX) in a $394 million stock transaction, boosting the emergence of fast-speed modem technology used over standard phone lines.

Under the deal, each share of Amati will be exchanged for 9/10 of a share of Westell?s common stock. A one-time merger charge is expected to be taken in Westell?s fiscal fourth quarter, which ends in March, when the deal is expected to close.

Amati investors expressed reserved enthusiasm over the deal, which was announced while the markets were open. Shares of Amati rose as high as 5.3 percent in trading, over the company's close of 18-3/4 yesterday.

But Westell investors bid up the stock as high as 12.1 percent in trading today, from its close of 22-3/16 yesterday.

Amati will be a wholly owned subsidiary of Westell and will continue to operate under its current name. It will be overseen by Jim Steenbergen, who will continue in his role as Amati chief executive.

Despite industry hype about an ADSL revolution, penetration of high-speed net access is still low compared with standard dial-up modem connections. But ADSL networks, which have been tested in the United States and in Australia, are expected to be rolled out for commercial service in the second half of 1997.

Digital subscriber line (DSL) technology is a modem technology that uses standard phone lines. Asymmetric digital subscriber line (ADSL) is one flavor of DSL that allows the downloading of data faster than information can be sent out on available phone lines, and is viewed as a rival to cable modems and ISDN.

Amati, which has been a Westell competitor for years, offers a transmitter pump that spits out bits of data using a discrete multitone (DMT) technology, whereas Westell offers a transmitter pump using a carrierless amplitude phase modulation (CAP).

"Amati has been successful in getting DMT accepted as the standard for ADSL," said Gary Seamans, chairman and chief executive of Westell. "We build systems for ADSL and now we can offer our customers either CAP or DMT."

Seamans pointed out that the two companies being merged do not have any overlap in customers or partners. As a result, he expects the company to save on merger operation costs. He added that he also expects to receive more favorable terms from suppliers now that the company has a larger presence.

Revenues are expected to ramp up with commercial deployment of ADSL systems this year and take off "significantly" in 1999, Seamans said. He noted that the companies anticipate co-development of products and should see the first results this quarter, with DMT products being created to work with the ADSL systems architecture.

Seamans noted that the merger should yield earnings results in line with analysts' existing forecasts for the companies and should not fall short.

Westell posted declining revenues and a widening net loss in the quarter ended June 30. Revenues reached $19.3 million, down from $20.3 million a year ago. The company's net loss, meanwhile, widened to $4.5 million from a loss of $1.7 million a year ago.