Tellabs Close to Carrier Access Buy

Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) is close to acquiring Carrier Access Corp. (Nasdaq: CACS), according to Light Reading sources close to both firms. The two firms have been in talks for a while, but that activity has accelerated now that Carrier Access has officially put itself on the block.

The offer price, according to just one of our two sources, is "close to $7 a share", which is slightly above what Huawei Technologies Co. Ltd. was rumored to have put out there in a letter of intent sent to Carrier Access last month.

The last few days have been a blur to Carrier Access, the small equipment company that hasn't seen a year of positive earnings since 2004. Its stock has been losing support on Wall Street; of the seven analysts following Carrier Access, three have Hold ratings and one has a Sell on the stock.

Earlier this week, Carrier Access COO Allen Snyder was promoted to CEO, replacing company founder Roger Koenig, who remains chairman of the board. Koenig's wife, Nancy Pierce, retired as the company's chief development officer, paving the way for the company to "pursue strategic alternatives."

Prior to that, Carrier Access had been picking up piece parts and solidifying itself in the wireless backhaul equipment space. In October 2006, it bought White Rock Shanghai, and in March it picked up Mangrove Systems' product portfolio.

The wireless backhaul space has been hot lately with the anticipation of carriers moving to 3G networks -- and that's where analysts say Carrier Access is most appealing. "Before it was all just voice, and only low bandwidth was required, but now you've got a lot of data traffic. The previous backhaul architecture doesn't scale to support it," says Gabriel Brown, chief analyst for Unstrung Insider.

So why buy Carrier Access? "Tellabs' gateway product is new and doesn't have all the features you would want, so this could be a way to skip having to develop it," says Brown. In addition, Carrier Access would bring additional exposure to AT&T Inc. (NYSE: T), which is a key customer for Tellabs.

Tellabs has long been speculated to be either a buyer or a seller in the M&A markets. (See Tellabs: Suitor or Bait? and Tellabs Tell?) "Tellabs' fundamentals are not in great shape, but they have a mountain of cash that they have to do something with," says one of our sources. "And once carriers can catch their breath, they're going to change their backhaul environments."

Neither Tellabs nor Carrier Access would offer comment for this story.

— Phil Harvey, Managing Editor, and Raymond McConville, Reporter, Light Reading