Lucent to buy Kenan in $1.4B deal

By Nancy Weil
IDG News Service, 01/12/99

Lucent is buying privately-held Kenan Systems, which makes third-party billing and customer care software, in a stock deal valued at about $1.48 billion, officials from both companies yesterday said at a teleconference.

Lucent will hand over about 12.88 million shares of stock in the deal that is expected to be finalized this quarter. Kenan, which has 750 employees worldwide, will become a wholly owned subsidiary of Lucent, and will keep its headquarters in Cambridge, Mass.

Kenan's founder and president Kenan Sahin will be president of the subsidiary and become a Lucent vice president for software technology at Lucent's Bell Labs. Some 100 Lucent developers and product experts will be put in Sahin's charge to work on billing and customer care software.

"We're filling a critical gap in our software portfolio," said Lance Boxer, group president of Lucent's Communications Software Group.

The acquisition is Lucent's first in communications business software, a fast-growing global market that company officials said was specifically targeted for an acquisition.

Kenan's 100-plus customers include MCI Worldcom in the U.K., British Telecommunications, France Telecom, AT&T's Worldnet, GTE's Interworking and @Home.

The company makes off-the-shelf software that doesn't require much customization. The software handles billing, order processing and customer analysis. Customers can use the software to create one bill for customers including any combination of wireless, wireline, voice, data, broadband cable and Internet services.

In its last fiscal year, which corresponds with the calendar year, Kenan had $175 million in revenue with 40% of its sales outside of the U.S, Sahin said. The company has offices in Singapore, Paris, Munich, London and Sydney, Australia and soon will open in Madrid. Kenan also has five offices in the U.S.

"With Lucent we will be focused on becoming a true software factory," Sahin said, adding that he sees growth opportunities for Kenan now that it will be part of Lucent.

Both he and Lucent officials said that since he created Kenan in 1982 he has "jealously guarded" his privacy, quietly establishing the firm as a major player in its market and rejecting overtures from other suitors. But the company's current size and its growth-above the industry average of 30% for third-party vendors in the same market-led Sahin to believe the time was right to sell.

He holds all of the shares in the company, so will receive all of the Lucent stock in the exchange, but he plans to establish an educational foundation that will create and disperse educational software globally at a nominal cost to faculty and students. Most of the proceeds from the sale will go to that venture, said Sahin, who was in academia for 17 years before founding Kenan.

The Kenan deal wasn't the only acquisition news involving Lucent, although it was the only news that officials were willing to confirm. A report in the Financial Times said that Lucent will buy rival Ascend in a deal expected to be worth $16 billion, which may be announced by Wednesday.

Lucent officials, citing company policy, declined to comment on rumor or speculation during the teleconference to announce the Kenan deal.

The Kenan acquisition means that "Lucent is on a roll," analyst Jeffrey Kagan said in e-mail. "This is a great move for them competitively."

Lucent customers "are going through wrenching changes on their own" trying to expand past core services, Kagan said. Those service providers are both merging networks and technologies and trying to find ways to incorporate billing and customer service, he said.

"They get these solutions from a patchwork quilt of different vendors," Kagan wrote, adding that the Kenan deal will help Lucent in its goal of providing full-service billing and customer care software to clients.