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March 14, 2007
Genband Inc. is in advanced talks to buy the Tekelec switching business in a deal expected to be closed and announced later this week, Light Reading has learned.
Sources close to both companies say Tekelec will make an equity investment in Genband, which is still a private company, as part of the transaction.
Less than half of the 300 employees associated with Tekelec's switching business in Plano, Texas, will keep their jobs and move to Genband, (also headquartered in Plano), sources close to both companies say. Genband today employs about 250 .
Sources say Genband, on track to book more than $40 million in revenues this year, is keen to expand its revenue base and product lines -- giving it more opportunities to sell into smaller carriers, wireless providers, and cable MSOs looking to migrate to IP networks.
With the additional revenue Tekelec's switching business would bring, in addition to its other acquisitions of late, Genband might be in a better position to make a run at the public markets later this year. (See GenBand Buys Siemens Unit and Genband Splashes Out for BayPackets.)
One problem: With these talks now in the public eye, Genband is concerned a bidding war might commence, as Alcatel-Lucent (NYSE: ALU) and Nortel Networks Ltd. wouldn't be keen on watching an up-and-coming competitor get bigger.
Meanwhile, Tekelec has long been wanting to get out from under its switching business, comprised of the acquisitions of Santera, Taqua, and Vocal Data. In November, the company was reportedly close to selling the switching business to Ericsson AB (Nasdaq: ERIC). That deal didn't materialize, and in December, Tekelec announced it had retained JPMorgan Partners to help it "look for strategic alternatives" for the business. (See Tekelec Switching Faces Gallows.)
Not everyone is sold on the idea of adding some old iron to Genband's product portfolio. "The trick for Genband is to, somehow, plaster this plethora of products into a concerted strategy and then build some market momentum behind the strategy and the company," says Kermit Ross, principal at Millennium Marketing, when told of the sale talks. Ross, once a marketing executive at Taqua, adds: "This job is going to take a lot of plaster."
"The switching business lost $70 million last year for Tekelec. So the ability to shed that unit is obviously a material gain for Tekelec," says Brean Murray & Co. Inc. analyst Eric Buck.
"The switching business had about $110 million in revenue last year, and Alcatel contributed an overwhelming percentage of that," Buck says. "So if it's not Alcatel buying it, you're are taking a risk that a large part of the revenue is going away."Executives at Genband could not be reached for comment. Calls to Tekelec weren't immediately returned.
Shares of Tekelec were up $0.20 (1.61%) to $12.59 in late afternoon trading today.
— Phil Harvey, Managing Editor, and Mark Sullivan, Reporter, Light Reading
Editor-in-Chief, Light Reading
Phil Harvey has been a Light Reading writer and editor for more than 18 years combined. He began his second tour as the site's chief editor in April 2020.
His interest in speed and scale means he often covers optical networking and the foundational technologies powering the modern Internet.
Harvey covered networking, Internet infrastructure and dot-com mania in the late 90s for Silicon Valley magazines like UPSIDE and Red Herring before joining Light Reading (for the first time) in late 2000.
After moving to the Republic of Texas, Harvey spent eight years as a contributing tech writer for D CEO magazine, producing columns about tech advances in everything from supercomputing to cellphone recycling.
Harvey is an avid photographer and camera collector – if you accept that compulsive shopping and "collecting" are the same.
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