Print

Email story

Comment

Email editor

Calif. company to buy Paradyne

Zhone Technologies's CEO says the $147.6-million deal for the Largo high-speed Internet access equipment maker will result in some job losses.

By LOUIS HAU
Published July 9, 2005

Paradyne Networks Inc. of Largo said Friday that it has agreed to be acquired by Zhone Technologies Inc. of Oakland, Calif., in a stock-swap transaction valued at $147.6-million.

Zhone and Paradyne are both makers of high-speed Internet access equipment. In a conference call with Wall Street analysts Friday morning, Zhone chairman and chief executive Mory Ejabat said he expected some job cuts to result from the merger, but didn't provide details.

Under the deal, Paradyne chairman and chief executive Sean Belanger and chief financial officer Patrick Murphy agreed to remain with Zhone as consultants for up to two years.

"The combined company will have the scale to accelerate Paradyne's position as a leader in the telecommunications industry," Belanger said in a statement.

Zhone said it agreed to issue 1.0972 shares of its common stock for each outstanding share of Paradyne common stock. Based on Zhone's closing stock price Thursday of $3.57, the company offered Paradyne shareholders $3.917 per common share of company stock, representing a 107 percent premium over Paradyne's closing price Thursday of $1.89.

Once the transaction is completed, Zhone's current shareholders would own about 63.2 percent of the combined company, which would retain Zhone's name. Paradyne shareholders would own the remaining 36.8 percent.

Zhone's stock closed Friday at $2.87 a share, down 70 cents, or 20 percent, while Paradyne's stock finished at $2.79, up 90 cents, or 48 percent. The drop in the value of Zhone's shares lowered the value of the transaction from $183.6-million to $147.6-million. The two sides said they expect the deal to be completed in the fall.

During a conference call, Ejabat said "there's going to be manpower reductions and all the other stuff" but didn't provide more specific information. Paradyne had about 375 full-time employees at the end of 2004, down from 502 at the end of 2002 and 869 at the end of 2000.

Ejabat told analysts during the call that he expects the merger with Paradyne to immediately add to Zhone's earnings, excluding the impact of acquisition charges.

To accomplish this, Zhone expects to realize cost savings "in every aspect of the business," including in administrative, sales, research and development and marketing expenses, Ejabat said.

He also said that Zhone hasn't yet decided whether to retain Paradyne's manufacturing operations in Largo.

During the call, Nutmeg Securities analyst Andy Schopick expressed skepticism about the promised cost savings, saying he was "very hard pressed" to see how the Paradyne takeover would increase Zhone's earnings, given that the Largo company had already done "a reasonably good job" of cutting costs and restructuring its business.

Ejabat responded that "we know there are lots of duplication in our . . . companies and there are going to be reductions."

[Last modified July 9, 2005, 01:01:15]