Nuance Communications Tumbles

An acquisition sparks a downgrade.
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Shareholders hammered

Nuance Communications

(NUAN) - Get Report

after an acquisition that prompted a downgrade from one analyst.

Nuance was recently off $1.43, or 8%, to $16.55 on heavy volume at midday.

The Burlington, Mass. developer of voice-activated software for telephony announced late Thursday that it would buy

Tegic Communications

, which is owned by

AOL

, a subsidiary of

Time Warner

(TWX)

, for $265 million in cash.

On Friday, Friedman Billings analyst Daniel Ives lowered Nuance to market perform due to the acquisition.

"While we share NUAN's excitement for penetrating the mobile market ... we disagree with the strategy behind this acquisition and believe this deal could take NUAN's 'eye off the ball' in the near term," Ives wrote. Friedman Billings makes a market in Nuance stock.

In fiscal 2008, Nuance expects Tegic, a maker of embedded software for mobile devices, to contribute between $45 million and $48 million in revenue, or a loss of 12 cents to 13 cents per share. Excluding items, Tegic revenue is projected to range from $65 million to $68 million, or EPS of 4 cents to 5 cents.

Nuance said the acquisition will enable it to deliver a new mobile user interface combining voice, text and touch to improve the user experience.

But Ives stated the mobile handset market is still years away from "adopting the company's holistic vision."

The combination is expected to generate $8 million to $10 million in cost synergies in fiscal-year 2008, according to Nuance. The transaction is expected to close in Nuance's fiscal fourth quarter.