AT&T; to Purchase Paradyne in Biggest Deal Since Breakup

American Telephone & Telegraph, seeking to expand its presence in the market for computer communications equipment, said Tuesday that it will buy Paradyne Corp., a data equipment maker still recovering from a prolonged criminal investigation into its business practices.

The acquisition, for $250 million in cash, would be AT&T;’s biggest since the company’s massive divestiture five years ago.

AT&T;, which approached Paradyne in November about a deal, said the acquisition of the manufacturer of modems and other computer-linking systems will allow AT&T; to expand into new product lines not covered by its existing data equipment operations.

Paradyne’s business is tying computers together. Its modems link computers over phone lines, while its other big product, a network management system, can help maintain and track the health of far-flung computers and remote computer terminals.

AT&T; said it went ahead with the acquisition because it believes that Paradyne’s thicket of legal troubles stemming from federal charges of bribery and fraud have been resolved, a spokesman said.

“As far as we are concerned, their legal problems are behind them,” said AT&T; spokesman Dick Gray.

In a 14-count indictment issued in 1985, Paradyne and eight current or former executives were charged with lying, offering bribes and defrauding the government in an effort to win a $115-million contract with the U.S. Social Security Administration to computerize the agency’s field offices. At the time, it was the largest contract ever awarded by the agency.

Federal prosecutors accused the Largo, Fla.-based company of faking a computer demonstration for federal officials to win the contract. Unable to produce its own equipment in time, the company used machinery made by another firm but presented the machinery as its own for the demonstration.

$10.25 a Share Offered

In 1987, Paradyne settled the federal criminal charges by agreeing to pay $1.2 million in fines and by ousting its chairman and president, Robert Wiggins.

Paradyne spokeswoman Miriam Frazer said Tuesday that the last of the civil suits stemming from the federal charges also have been settled.

A new president, John Mitcham, a former IBM executive, negotiated the sale to AT&T.; He will serve as president of the AT&T; division formed by the merger of Paradyne with AT&T;’s existing data equipment operations.

Negotiations began a few months after it was disclosed in August that a group led by New York investor George Soros acquired 10.9% of Paradyne’s common stock.

The deal offers $10.25 per share to all Paradyne stockholders. Paradyne’s stock closed on the New York Stock Exchange on Friday at $5.25, but leaped on news of the buyout agreement Tuesday to finish at $10.

One factor that attracted AT&T; to Paradyne was its strong presence in foreign markets, according to Gray. Paradyne now sells its modems and other products in 47 countries, including Japan and Europe.

Financial Problems

“Paradyne has a good distribution system in other countries, and in that part of our business, very little of our sales are overseas,” said Gray.

Yet Paradyne still is not financially healthy. In 1987, it lost $2.6 million on sales of $232.6 million, due in part to heavy legal costs associated with the federal investigation.

In the third quarter of 1988, it posted a loss of $37.4 million on sales of $56.8 million, due mostly to a one-time charge of $32 million caused by its withdrawal of some older product lines.

“The market has been very competitive and we’ve had a lot of legal fees associated with the Social Security contract over the years,” said Frazer.