Infinera-Transmode Closing Imminent; Karl's in Charge... of Metro

Dan O'Shea
News Analysis
Dan O'Shea, Analyst, Heavyreading.com
8/14/2015



Infinera's Transmode acquisition should close within a week, following news that about 96% of the Swedish company's shareholders had accepted Infinera's bid. With 37% of the approving shareholders accepting a Door No. 2 "capped cash" offer that Infinera created as an alternative to its original cash-and-stock offer, Infinera's decision last month to give Transmode investors that choice is looking pretty smart.

Infinera Corp. (Nasdaq: INFN) CEO Tom Fallon, in an interview with Light Reading, declined an invitation to speculate whether the outcome might have been different if the California vendor hadn't allowed Transmode Systems AB shareholders to choose between cash-and-stock and just cash. "It's hard to say," Fallon said. "I was surprised by how many people took the cash, quite frankly."

Last month, Infinera said it already had seen its original mixed cash-and-stock offer accepted by 54% of Transmode shareholders, an encouraging figure, given that the acceptance period hadn't even started yet. However, such acquisitions in Sweden require acceptance by at least 90% of shareholders, and Infinera moved to heighten its chance of a successful buyout by announcing a "capped cash" option. (See Transmode Shareholders Approve Infinera Takeover and Infinera Makes $350M Offer for Sweden's Transmode.)

"There was a premium baked into the stock offer, but I think when we listened to the concerns they had and came back with an alternative offer, they came away with the impression that we were interested in what was good for Transmode shareholders," Fallon said. "That could have influenced how they felt about the acquisition. Swedish investors have sometimes been jaundiced about American companies buying Swedish companies and then shutting down or trimming [costs from them]."


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But shutting and cutting is not what Infinera has in mind for Transmode. "We're buying this company for revenue synergies, not cost synergies," Fallon said. It's unclear for now whether or not Infinera will implement any layoffs, but Fallon said Infinera is more likely to hire more people into the Transmode part of its operation over time, and that where redundancies might currently exist, they could be dealt with by moving people into different jobs.

The acquisition is due to close by or on August 20, and upon completion, Transmode CEO Karl Thedeen will become the managing director of Infinera's new Metro Business Group, which will include both the Transmode operations and Infinera's own fledgling metro assets. While Infinera is still targeting this fall to announce a new metro aggregation product, much of what happens from deal close forward with Infinera's metro ambitions will be up to Thedeen. "Karl will decide what we carry forward, and he will be held accountable to win in the metro," Fallon said. "We're not going to tell him what he can and can't do to go do that."

Also, Fallon said one of the first agenda items after the companies combine will be to map out how they support customers during the transition. "As companies integrate and merge, you have to start with the customers," Fallon said. "What you want them to see is that they're dealing with one company. We'll start with [integrating] IT systems and operations systems." Early on, the companies also will set up integrated network management to homogenize the experience of customers with both Infinera and Transmode gear in their networks.

"Then, over time [we'll] look at how we do more product integration," Fallon said. "We'll say, 'Listen, Karl, in addition to what you're so good at using off-the-shelf technologies, here is a whole big toolbox of cool new technologies, whether it's coherent or PICs or other things we have, and go continue to figure out how to build the world's best metro platforms."

It turned out to be a busy week news-wise for both Infinera and Transmode. Infinera also announced this week that it continues to see its DTN-X platform deployed in Windstream Communications Inc. (Nasdaq: WIN)'s long-haul network to support the company's 100G rollout. In addition Transmode announced a deal with Canadian carrier Sogetel. (See Windstream Continues 100G Expansion With Infinera and Sogetel Deploys Transmode's TM-Series Gear.)

Dan O'Shea, Managing Editor, Light Reading

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