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Tellium Hits the RoadTellium Hits the Road

Tellium trims its IPO size by 25 percent as it starts its investment offering road show

April 30, 2001

3 Min Read
Tellium Hits the Road

The market for optical IPOs may be as dry as the dust in a mummy's tomb, but Tellium's still looking to make a run for the public markets (see IPO Window Shuts Tighter).

This week the optical switch equipment maker kicked off its IPO investment road show and again trimmed the size of its potential IPO from $141 mllion to $112 million. Road shows, formal tours in which managers give presentations to drum up investment interest, usually happen about a month prior to the day a company becomes public. Several sources confirmed that Tellium had embarked on a road show. The company's PR department offered an official "no comment" in response to Light Reading’s inquiry as to its executives' whereabouts.

In the road show, the company must convince large mutual funds and other institutional investors to support the IPO. Tellium changed the size of its offering in an attempt to make its shares more attractive to investors. The optical switch maker raised its offering price to $13-$15 a share from the $8-$10 a share previously set. However, it cut the number of shares offered from 15 million to 7.5 million.

The price change appears to be cosmetic and might be most important to institutional investors, since many fund managers can't buy stocks that are approaching the low single digits. Had Tellium's shares gone public at $8 and then dropped, it might have scared off some big checkbooks.

The most important metric here is that the possible proceeds from the offering have dropped to $112.5 million from about $141 million, a 25 percent plunge in the offering's value.

It's hardly surprising that the firm's now trying to tap less money from the public markets, analysts say. "Tellium's got plenty of revenues, but their losses are quite high," says George Nichols, an analyst at Morningstar.com. "I doubt investors will be throwing dollar bills at them."

In the most recent SEC filing, Tellium reported that as of March 31, 2001, the company had approximately $166.8 million in cash and cash equivalents. The number of employees had increased from 156 to 493. Also as of March 31, the company reported an accumulated deficit of approximately $206.0 million.

The company's sales are still concentrated in a small number of customers. For example, in the most recent filing, Dynegy Inc. (NYSE: DYN) accounted for approximately 70 percent of Tellium's revenues for the three months ended March 31, 2001, and Qwest Communications International Corp. (NYSE: Q) accounted for about 30 percent of its revenues for the same period.

Tellium also counts Cable and Wireless (NYSE: CWP) Global Networks Ltd. as a customer. That agreement says C&W will buy a minimum of $350 million worth of gear by August 7, 2005. But C&W has the right to reduce its commitment to $200 million.

This is the third time Tellium has lowered the total size of its IPO. In March, Tellium reduced the price range on its offering to $8-10 per share from $13-15. At that time, it not only dropped the price of the offering, but the number of shares offered also decreased to 15 million from 17.5 million. The offering's possible proceeds after that update plunged to below $150 million from the more than $260 million originally envisioned (see Tellium Lowers Its IPO Ambitions).

March was also the month Light Reading first reported that Tellium had switched lead bankers from Goldman Sachs & Co. (NYSE: GS) to Morgan Stanley Dean Witter, which was not previously involved in the offering (see Tellium Switches IPO Bankers). Thomas Weisel Partners is still the co-lead on the offering, supported by UBS Warburg, CIBC World Markets, and Wit Soundview (Nasdaq: WITC).

-- Phil Harvey, Senior Editor, Light Reading http://www.lightreading.com

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