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Tellabs Buys AFC for $1.9 Billion

Light Reading
News Analysis
Light Reading
5/20/2004
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Billion-dollar buyouts are back on the telecom agenda. Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) announced this morning it is buying access equipment vendor Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI) in a stock and cash deal worth $1.9 billion (see Tellabs to Acquire AFC).

The move comes only three months after Juniper Networks Inc. (Nasdaq: JNPR) announced a $4 billion takeover (see Juniper Buys NetScreen).

Today's announcement shouldn't come as a shock, as Light Reading has been writing about a potential deal for months (see Tellabs Angling for Access – and AFC, Talk of AFC Deal Is Back , and AFC Chief Says Sale Makes Sense). Analysts say a major factor in the agreement may have been AFC's need for a larger partner to go after FTTP deals at large RBOCs, such as those developing at Verizon Communications Inc. (NYSE: VZ) (see Verizon's FTTP Demo Helps AFC and Verizon Flaunts Fiber Plan).

AFC's stock was trading up $2.01 (12%) to $18.84 in morning trading, reflecting a premium in the price offered over yesterday's stock price.

The news was not well received by all investors. Tellabs' share price fell $1.22 (13%) to $7.97 in morning trading.

Tellabs and AFC executives say the motivation for the deal is to tap into the booming broadband market.

"Marrying the leader in access with the leader in transport positions us to grow with our customers in the industry's sweet spot of broadband services," said Tellabs CEO and president Krish Prabhu in a prepared statement. "Together, Tellabs and AFC create a strategic global telecom equipment supplier that will lead the industry's shift to broadband data with end-to-end access and transport solutions."

Under the terms of the transaction, AFC stockholders will receive 1.55 shares of Tellabs common stock and $7.00 in cash for each AFC share. Based on Tellabs' closing price yesterday, the deal is valued at $1.9 billion.

Once the acquisition is completed, Tellabs stockholders will own approximately 75 percent of the company and AFC stockholders the remaining 25 percent. The acquisition is set to close in the second half of 2004.

AFC's CEO John Schofield will become chief operating officer and a director of Tellabs once the deal is completed. The combined company will employ about 4,100 staff around the world.

Rumors of the Tellabs/AFC combination first surfaced in January 2004, when the access gear vendor was valued at more than $2 billion. Since then AFC's stock price tumbled from a high of $27.50 to around $15.50, giving it a market capitalization of $1.4 billion and making an acquisition more attractive. Tellabs' stock had held steady, helped by the fact that the company posted its first profit in two years last quarter (see Tellabs Returns to Profit).

Light Reading will update this story as more information becomes available.

— Pauline Rigby, Senior Editor, Light Reading

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palaeozoic
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palaeozoic,
User Rank: Light Beer
12/5/2012 | 1:45:37 AM
re: Tellabs Buys AFC for $1.9 Billion
Let's see if I've been keeping accurate notes: Marconi barely skirts bankruptcy, strips down its aging North American Access business and peddles it to AFC. AFC, with an imploding core business, just announced its worst quarterly results in 5 years and peddles itself to Tellabs. What's next?Tellabs, master of digital cross connects in an IP world, peddles itself to...Nortel. Nortel, still noodling over the meaning of accounting, peddles itself to...oops, I guess this strategy only works as long as there are bigger suckers left to play the game.
USA
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USA,
User Rank: Light Beer
12/5/2012 | 1:45:36 AM
re: Tellabs Buys AFC for $1.9 Billion
Tellabs has made some dumb acquisitions over the past few years, but I will go in the record as saying that this is the dumbest move they have ever made. This may take both companies down.

We'll how long Schofield lasts before he heads back to Oz.
Truelight1
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Truelight1,
User Rank: Light Beer
12/5/2012 | 1:45:35 AM
re: Tellabs Buys AFC for $1.9 Billion
Okay LR does some of your sniffing and get the scoop on this deal.
BlueWater66
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BlueWater66,
User Rank: Light Beer
12/5/2012 | 1:45:35 AM
re: Tellabs Buys AFC for $1.9 Billion
WHAT? I could believe the "Leader in Cross Connects" or even call them the "Leader in Switching".... but what the $#$#$#@ does he mean by TRANSPORT. They aren't the leader in DWDM transport systems.

Maybe the new CEO should sit back and learn more about the company before he starts talking. Or maybe I need to be re-educated on my definitions (feel free to respond).

Otherwise, I like Tellabs and think the 5500 is a solid, alas mature, product. Also like the Ocular and Vivace boxes. The 5500-NGX is a neat box. The AFC deals seems reasonable to me (but expensive), because Tellabs has such a strong position selling DCC with a huge number of ports pointing out towards the edge. Linking an AFC machine to each of those outward facing ports is interesting.

But- Tellabs has a terrible track record integrating acquisitions. Good luck!
rbkoontz
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rbkoontz,
User Rank: Light Beer
12/5/2012 | 1:45:33 AM
re: Tellabs Buys AFC for $1.9 Billion
Siemens, among others, did diligence on AFCI earlier this year. They were rumored to want to make a better offer. Wonder what happened. Is this AFC calling Siemens bluff? Siemens can still make a bigger offer with a 3% breakup fee. Let the bidding war begin.
whyiswhy
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whyiswhy,
User Rank: Light Beer
12/5/2012 | 1:45:33 AM
re: Tellabs Buys AFC for $1.9 Billion
"Tellabs and AFC executives say the motivation for the deal is to tap into the booming broadband market."

ROTFLMAO!

Look guys, we all know the days of fiducial duty to the shareholders, debt holders, the customers and especially to the employees are over.

This is a grab for the cash. Fire hose it. Both companies in trouble, a completely over-valued deal, what else?

-Why
echo2
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echo2,
User Rank: Light Beer
12/5/2012 | 1:45:31 AM
re: Tellabs Buys AFC for $1.9 Billion
The bubble is back!!

My options are going to make me rich!

echo2
technonerd
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technonerd,
User Rank: Light Beer
12/5/2012 | 1:45:27 AM
re: Tellabs Buys AFC for $1.9 Billion
... of a brontosaurus and a stegosaurus. Oops, what's that flaming boulder in the sky?
Big Red
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Big Red,
User Rank: Light Beer
12/5/2012 | 1:45:22 AM
re: Tellabs Buys AFC for $1.9 Billion
Interesting timing. A day before this announcement Jo Scho mentions that everything is OK with FTTP. FTTP is THE deal to bail out AFC. Now the project is off his clock, COO or not. Based on the continued skepticism everywhere outside of AFC, I would bet some sort of leak or announcement within the next month or so that AFC still has not delivered a deployable product.

Takers ?

Big Red
tekbabe
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tekbabe,
User Rank: Light Beer
12/5/2012 | 1:45:20 AM
re: Tellabs Buys AFC for $1.9 Billion
Hello boys... what do they say??? Timing is EVERYTHING! Take the money and run before you're held accountable for the sinking ship.
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