Terayon's Stock Soars

Terayon's stock is up on buyout reports

Alan Breznick, Cable/Video Practice Leader, Light Reading

December 12, 2006

3 Min Read
Terayon's Stock Soars

Terayon Communication Systems Inc. is enjoying a stock surge today, on the heels of news reports that Motorola Inc. (NYSE: MOT), Cisco Systems Inc. (Nasdaq: CSCO), and up to two other cable equipment suppliers are bidding for the tech vendor. (See Motorola, Cisco Bidding for Terayon .)

Terayon's stock closed up $0.25 (15.24%) to $1.89 on heavy volume in trading on Tuesday. The Silicon Valley firm's stock climbed as high as $2.10 a share in early-morning trading before settling into a slightly lower trading range during the afternoon.

The share price surge came after Cable Digital News and other outlets and industry analysts reported that Cisco, Motorola, Harmonic Inc. (Nasdaq: HLIT), and possibly a fourth cable vendor, Arris Group Inc. (Nasdaq: ARRS), are now engaging in a bidding war for Terayon. Several industry sources say the would-be suitors are seeking to take out Terayon for an estimated $225 million to $275 million sometime over the next few weeks.

Spokespeople for Motorola, Cisco, Arris, Harmonic, and Terayon all declined comment on the reports. But none of them disputed the accuracy of the stories.

Any deal is contingent on Terayon finally completing and filing its freshly audited financial statements for the last several years. Delisted by the Nasdaq last spring because of various accounting problems, Terayon has been struggling since it was hit by shareholder lawsuits over questionable stock sales by its two founders, brothers Zaki and Shlomo Rakib, and other company insiders,

In a new Wall Street report supporting the sales reports, Jefferies & Co. Inc. analyst George Notter writes that he expects Terayon to complete the financial restatement process by year-end. The company, which hasn’t filed any quarterly financial reports since the second quarter of 2005, is now restating all of its earnings results extending back through 2000.

Notter, managing director of communications equipment equity research for Jefferies & Company Inc. , also writes that the shareholder suits against Terayon appear close to being settled. He says the company has agreed to pay the disgruntled investors $15 million to resolve their gripes.

Like several other research analysts, Notter believes that Terayon would be a valuable pickup for anyone because of its digital video business. He estimates that the company's popular CherryPicker platform, which has been deployed widely by such major MSOs as Comcast Corp. (Nasdaq: CMCSA, CMCSK), Time Warner Cable Inc. (NYSE: TWC), and Charter Communications Inc. , could generate $65 million in sales this year and $75 million in 2007.

"Moreover, the market for digital video applications appears to be heating up," he writes. "We understand that a number of cable operators are getting more active in looking at digital simulcast applications."

While Moto and Cisco are the biggest of the bidders, Arris, has plenty of cash and has made it clear that it would like to expand into the video hardware business. In fact, the Atlanta-based vendor raised $275 million early last month from the sale of convertible senior notes, at least partly to increase its war chest for future purchases.

"Acquisitions are part of our growth strategy," says Jim Bauer, head of investor relations for Arris, while declining to discuss the Terayon reports. "I'm sure everybody's looking at everybody else."

— Alan Breznick, Site Editor, Cable Digital News

About the Author(s)

Alan Breznick

Cable/Video Practice Leader, Light Reading

Alan Breznick is a business editor and research analyst who has tracked the cable, broadband and video markets like an over-bred bloodhound for more than 20 years.

As a senior analyst at Light Reading's research arm, Heavy Reading, for six years, Alan authored numerous reports, columns, white papers and case studies, moderated dozens of webinars, and organized and hosted more than 15 -- count 'em --regional conferences on cable, broadband and IPTV technology topics. And all this while maintaining a summer job as an ostrich wrangler.

Before that, he was the founding editor of Light Reading Cable, transforming a monthly newsletter into a daily website. Prior to joining Light Reading, Alan was a broadband analyst for Kinetic Strategies and a contributing analyst for One Touch Intelligence.

He is based in the Toronto area, though is New York born and bred. Just ask, and he will take you on a power-walking tour of Manhattan, pointing out the tourist hotspots and the places that make up his personal timeline: The bench where he smoked his first pipe; the alley where he won his first fist fight. That kind of thing.

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