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Tellabs to Be Sold to Marlin for $891M

Ray Le Maistre
10/21/2013
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Tellabs has agreed to be acquired for $891 million in cash by emerging optical networking powerhouse Marlin Equity Partners.

The deal may help extend the life of the ailing optical equipment vendor, which has been seeking a buyer for a while, but it doesn't provide much value for investors, as the agreed price of $2.45 per share is only 10 cents higher than Friday's closing price of $2.35. (See Tellabs CFO Roundabout Gets Another Spin and Tellabs Axes Product, Cuts Jobs.)

News of the deal sent Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA)'s share price up by 5 percent to $2.47 in early morning trading.

For Marlin Equity Partners , the move cements its position as a serious and committed player in the optical equipment market, as the company has already snapped up Nokia Solutions and Networks (NSN)'s transport division and part of Sycamore Networks to form Coriant . (See Coriant Counts on NSN's Optical Strengths, Coriant Soaks Up Sycamore, Coriant Boasts 'SDN-Plus' System, and Sycamore + NSN Optical = Coriant.)

Now it is adding a business with annual revenues of between $800 million and $900 million and a mature customer base, including Verizon Communications Inc. (NYSE: VZ), where Tellabs is one of the operator's two preferred metro transport equipment suppliers alongside Fujitsu Network Communications Inc. The move will also give Marlin an optical access product line, some routers, in the form of Tellabs's 8800 and 8600 platforms and an expanded software-defined networking (SDN) pitch. (See Tellabs Boasts SDN 'Engagements'.)

If successful, the deal may represent something of a bargain for Marlin, as Tellabs has a substantial chunk of cash in the bank (more than $540 million at the end of the second quarter) so the investment firm may only be shelling out about $350 million net to add Tellabs to its optical stable.

It also comes as the optical sector is experiencing something of a resurgence, a trend that was represented in Ciena's most recent financial report. (See Ciena's Smith: Next-Gen Spending Has Tipped and WDM Market Grows 10 Percent.)

— Ray Le Maistre, Editor-in-Chief, Light Reading

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Curiousfellow
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Curiousfellow,
User Rank: Lightning
12/5/2013 | 2:52:09 PM
So much promise
The fate of the company was determined when:

1. Target Market; the decision was made to bet everything on Telcos and abandon the private market. Everything was bet a few products with a very tiny number of possible customers.

2. The decision was made to flip the switch from being an entrepreneurial risk-taking results-oriented company to a rigid multiple-layer Senior Management driven company with VPs stacked like a 7 layer birthday cake. Brown-nosing replaced risk-taking as the way to move up.

3. Other than Martis, Billions of dollars and much of Management's attention wasted on fruitless acquisitions. The money would have been better spent as Dividends to the Stock Holders.

4. The decision to bring Senior Managers from companies that Tellabs was beating to run Tellabs like a "big company", that would be failed ATT  after they lost their monopoly status & IBM while they were stumbling either just before or just after Gerstner cleared 20K+ employees out of the HQ that no one could say what they did for the company. The facts are my best recollection of IBMs record, if someone had a better set of fact feel free to chime in.

5. The decision to hire expensive employees who had never delivered anything, but did the planning and recommending on most key decisions, which others would have to implement.

This company's decline started several years before the revenues peaked and went into decline as the ideas and risk takers had either left the company or simply went silent and waited for their next multi-spectral, peer-level, 360, sensitivity, attention to brown nosing multi-week review process....while the entire bonus pool was allocated to just a few people at the top who had contributed nothing but arrived in time to make Tellabs just like AT&T and pre Gerstner IBM giant egos with no ideas or results but lots of posturing.
go_ON1970
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go_ON1970,
User Rank: Light Beer
10/22/2013 | 1:20:57 AM
This is sad
Tellabs were a really good company to work for. The management team has been appalling for lobger than I can remember. Absolutely clueless Egos milking the company for all its worth. A great shame that a lot of very tallented people will now be thrown on the heap.

The main problem I see with Tellabs is that it never had a vision or leader it could trust, after Mike Birck stood down the first time..Once it hit 2000 it entered a state of constant panic, re-orgs, expensive snapshot acquisitions and tactical downsizing. Even when it did fluke a niche like mobile backhaul, it didnt have the balls to invest properly in it, and allowed others to catch up. Anything not produced in Chicago was mistrusted


The price is very low, but Im guessing the payouts to senior staff won't be, and Im also guessing there was some nice retention money going in the last 12 months - for a select group of insiders.
DOShea
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DOShea,
User Rank: Blogger
10/21/2013 | 10:44:39 PM
Re: Isn't that price a BIT LOW - counterbid anyone?
I think seven has covered everything pretty thoroughly, but the other simple reason you aren't likely to see a counter-bid here is the simple fact that Tellabs already talked to more than 30 other companies about a possible acquisition... 30.
brookseven
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brookseven,
User Rank: Light Sabre
10/21/2013 | 2:44:58 PM
Re: Isn't that price a BIT LOW - counterbid anyone?
Carol,

I will tell you my experience as part of the AFC acquisition....

AFC quickly became 50%+ of Tellabs revenue which really set people in Chicago back on their heels.  It looked like (probably wasn't) they targeted those on the "retention bonus" list out of AFC for exiting ASAP.  Essentially decaptitated the team at AFC that had built that business.  Then the piece de resistance....they put the Marconi team that was being run out of business in charge of Access.

My impression is that the guys in Chicago wanted to line their pockets not realize they were no longer in charge.  If you want, I will email you a story about details on this particular point.

seven

 
Carol Wilson
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Carol Wilson,
User Rank: Blogger
10/21/2013 | 1:56:16 PM
Re: Isn't that price a BIT LOW - counterbid anyone?
First, impressive review of why Tellabs wound up where it is today - a lot of aspirational buying that didn't lead to marketable products.  I wonder why?

Second, it will be interesting to see the strategy they put forward for the company's future. 

 
DanJones
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DanJones,
User Rank: Blogger
10/21/2013 | 1:51:10 PM
Re: Isn't that price a BIT LOW - counterbid anyone?
Yeah, that's got to smart, being bought for the around the price of one of your former acquisitions.
brookseven
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50%
brookseven,
User Rank: Light Sabre
10/21/2013 | 12:02:04 PM
Re: Isn't that price a BIT LOW - counterbid anyone?
I thought I would add that the Enterprise value here is lower than what Tellabs paid for AFC (and heck about the same as it paid for WiChorus).

 

seven

 
brookseven
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brookseven,
User Rank: Light Sabre
10/21/2013 | 11:13:31 AM
Re: Isn't that price a BIT LOW - counterbid anyone?
Ray,

I posted this to the news story, but Ericsson was posting bids from the time of the AFC buy through the departure of Krish.  They will all nixed at the Board level as too low.

Now if Mike is still an 8% owner, that means he will get less than $100M for his stake (which at its peak would have been worth over $1B bur more recently worth a few hundred millions).

The problem with a higher price is the following:

1 - They killed Access so there is essentially nothing left of that.

2 - The 5500 is going the way of the Dodo.

3 - They wiped out any future for the 8800 and then abandoned it.

4 - They eliminated WiChorus.

5 - The old SDH and PDH products out of Finland and Denmark are fading.

Which leaves them with

6 - The 7100 which has huge challenges with both Gross and (even worse) Net Margin.

7 - The 8600 which has had its run and now has much bigger and better funded competitors.

So other than the cash that will be spun out of the old products, you are left with a marginal optical product and a wireless backhaul product that has been overtaken by its rivals.  How much is that worth given that you have 1000s to lay off?

seven

 
Ray@LR
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Ray@LR,
User Rank: Blogger
10/21/2013 | 10:37:22 AM
Isn't that price a BIT LOW - counterbid anyone?
The more I think about it, it seems Marlin might be getting a bit too much of a bargain....

A counterbid does seem a bit unlikely seeing as Tellabs has had the 'for sale' up for a while and this appears to be the best offer it could attract, but once others see that Tellabs can be snapped up for less than $1 billion (including its cash) then maybe...

But then, who else but marlin is buying optical these days?

 

I'd love tos ee Huawei put in a counterbid, just to see the politicians go into meltdown...
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