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Why buy a company just before it declares bankruptcy?
That's the question surrounding many telecom equipment makers even as deal rumors continue to swirl in an industry that everyone agrees is ripe for consolidation.
As sales among networking technology makers continue to fall and liquidity crises loom, potential acquirers are sitting on the sidelines. The reason? They're waiting for the companies to go bankrupt so they can buy deeply discounted assets while ditching the debt and legal liabilities that accompany distressed firms.
Responding to rumors that prospective buyers, including aerospace companies, are eyeing Lucent Technologies Inc., Steven Artuso, an analyst with Pittsburg Research Inc. of Great Neck, N.Y., asked: "Why would [a company] acquire Lucent now? That would be like acquiring WorldCom a week before it filed for bankruptcy."
To be sure, Lucent reported cash of $4.4 billion for the quarter ended Sept. 30, and expects to end 2003 with $2 billion. But holders of Lucent's $1.6 billion in 8% convertible preferred...