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DSC CORP. SWITCHES TO ALCATEL

Alcatel Telecom will acquire DSC Communications Corp. in a stock-for-stock transaction, according to a definitive agreement announced by the companies last week.

The deal is thought to give Paris-based Alcatel a much-desired expanded presence in North America that will allow it to better compete with Northern Telecom Ltd. and Lucent Technologies Inc.

Terms of the agreement, which has been approved by each company’s board of directors, call for DSC shareholders to receive .815 of an Alcatel American Depository Share for each outstanding DSC share. The transaction is valued at about $4 billion.

“Alcatel’s strategy is to be a pre-eminent worldwide player in the evolution of networks from narrowband to broadband, with voice/data convergence,” said Serge Tchuruk, chairman and chief executive officer of Alcatel. “This goal requires highly advanced broadband technology, already developed by Alcatel, and a more commanding U.S. presence, which Alcatel is moving toward with its acquisition of DSC.

“This acquisition creates an outstanding fit between Alcatel’s broadband (Asynchronous Transfer Mode) and data technology and the strong market position that DSC has developed in access and switching.”

David Kerr, director of wireless programs at Strategy Analytics, said the deal is part of an evolution from narrowband to broadband that was brought into sharp focus last week with Sprint Corp.’s Integrated On-Demand Network announcement. That announcement added to other regional Bell companies’ activities in the broadband arena has network vendors trying to catch up with the perceived demand, said Kerr.

Dallas-based DSC provides digital switching, transmission, access and network management systems. DSC supplies switches to Motorola Inc.

Alcatel supplies products and services ranging from backbone networks to user terminals. The combined company will be headquartered in Texas, where Alcatel maintains a wholly owned subsidiary-Alcatel Network Systems Inc.-which specializes in transmission systems.

The transaction is expected to close in about four months.

Alcatel had been rumored to be a candidate to partner with Motorola, which is said to be weak in the wireless switching arena. Other analysts speculated DSC might have been a good acquisition for Motorola. However, Motorola has many problems of its own to work out, and it needs to spend time on basics rather than acquiring companies, said Francis McInerney, principal telecom equipment analyst with North River Ventures Inc.

Motorola last week said it would cut thousands of jobs in a move designed to improve its financial performance (See story on Page 2).

McInerney said the DSC/Alcatel tie-up brings important financial power to DSC. The key, he said, will be how the companies approach their account management issues.

DSC’s recent history has been turbulent. It achieved lower-than-expected first-quarter financial results, including a 9-percent reduction in revenues and a net loss of $30.1 million, compared with a net income of $16.4 million for the first quarter of 1997. The Asian economic crisis and deferred capital purchases from two of DSC’s larger long-distance companies were blamed for the results.

James L. Donald, chairman and chief executive officer of the company, called DSC’s first quarter financial performance “an obvious disappointment.” Just weeks earlier, Donald announced plans to retire from the posts of president and chief executive officer.

DSC’s stock soared more than $7 to close at $27.50 Thursday and was trading as high as $29.19 midday Friday. Alcatel’s ADS were down a few points following the announcement but were rebounding midday Friday at $41.94.

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