French phone equipment maker Alcatel is in serious discussions to purchase Canadian networking firm Newbridge Networks, sources say.
A deal--worth more than $6 billion--could be announced as early as Tuesday when Newbridge reports its quarterly earnings, sources within Newbridge said today.
"There's no completed deal yet, and until then, anything can happen and there's nothing to announce," said the source, who added that negotiations could last beyond Tuesday.
"But it looks like we had a good quarter, and to a suitor, that has to look good. And if it doesn't work out, we're willing to stay independent and willing to build ourselves back as a company on the rebound."
Alcatel and Newbridge representatives declined comment on the potential takeover.
Newbridge, which has financially struggled lately, has discussed buyouts with several companies in the last few months, the source said. The source declined to name the suitors.
Published reports have speculated that Germany's Siemens and Sweden's Ericsson have been among the companies interested.
Similar to those firms, Alcatel would be interested in Newbridge because the company has developed a set of high-end Internet-based equipment for voice and data traffic--something the French phone equipment maker lacks.
The source close to Newbridge said Alcatel's current offer on the table is "significantly higher" than the company's current stock price. Newbridge currently has a market value of $5.9 billion.
The source said Terrence Matthews, Newbridge's chief executive, talked about a potential takeover two weeks ago. "He told associates that he likes the price, and if he likes the price, they'll like the price," the source said.
For Alcatel, buying Newbridge will help it in its quest to tackle the North American market. The French phone equipment maker is one of several international companies hoping to compete against domestic leaders like Cisco Systems, Lucent Technologies and Nortel Networks in supplying service providers and businesses the equipment they need to build faster networks.
For Newbridge, a one-time leader in the networking market, the acquisition will end several years of executive turnover and financial struggles. The company has had seven profit warnings in the last three years.
"Alcatel would rescue them from the wrenches of volatile management, lack of focus and lack of money," Cahners In-Stat Group analyst Laurie Gooding said. "They've got great products. Customers like them, but they can't seem to get their act together."
Newbridge builds asynchronous transfer mode (ATM) technology, which sends voice and data signals over networks at high speeds. The company sells ATM-based high-speed routers and is developing products in the emerging high-speed Internet access market, including digital subscriber line (DSL) technology.
Since November, Newbridge's shares have jumped from about $20 to about $35 as investors speculated that a buyout was imminent.
Newbridge executives in mid-November said the company would be open to a takeover after it announced a restructuring that included cutting about 700 employees, or 10 percent of the work force, and plans to outsource its manufacturing and customer service operations to cut costs.
Alcatel has invested heavily in the past year to enter the North American market. Alcatel has spent about $7 billion the last two years to acquire five U.S.-based networking companies, including Xylan, Packet Engines and Internet Devices. The company also recently created a $150 million investment fund to invest in U.S.-based start-ups.