Tellium Switches IPO Bankers

Morgan Stanley, rather than Goldman Sachs, will be running the show. Rivalry with Ciena may be the reason

February 27, 2001

3 Min Read
Tellium Switches IPO Bankers

Tellium Inc. has replaced Goldman Sachs & Co. (NYSE: GS) with Morgan Stanley Dean Witter as the lead underwriter for its IPO, several sources close to Tellium say. Tellium filed for its IPO in September 2000, and the offering is expected to raise $262.5 million for the optical switch maker.

It’s hard to say what Goldman Sachs’s role in the IPO will be at this time. One source tells Light Reading that it’s doubtful that the name will be on the prospectus cover at all. Morgan Stanley was not part of the Tellium deal until now, whereas Goldman had been listed as the lead underwriter since Tellium's first SEC filing.

Sources say Tellium’s banker change primarily revolves around Goldman Sachs's longstanding relationship with Tellium’s archrival, Ciena Corp. (Nasdaq: CIEN).

When Ciena went public in February 1997, its Goldman-led offering raised $115 million, and the company achieved the largest valuation ($3.4 billion) of any early-stage, venture-backed IPO in history. More recently, Goldman Sachs and Morgan Stanley both aided Ciena in a $1.52 billion secondary offering of 11 million shares and $600 million in bonds (see Ciena Taps Market for $1.5B).

Tellium officials may have become leery of the prospect of having Goldman try to sell their deal to institutional investors months after the bank told the same investors to buy Ciena's secondary offering.

Regarding Tellium’s readiness to go public, the company is said to be waiting for more favorable market conditions (see Optical IPOs Hang at the Gate). Since its founding in 1997, Accel Partners, Oak Investment Partners, Blue Rock Ventures, Cisco Systems Inc. (Nasdaq: CSCO), Pequot Capital Management Inc., and seven other investors have pumped some $96 million into Tellium. Also, late last year, Thomas Weisel Partners helped the company complete a $212 million private placement.

Tellium’s fundraising has risen in proportion to its staff growth and financial losses. Between its founding and Sept. 30, 2000, Tellium had lost about $99.9 million, according to its Dec. 7, 2000, filings with the Securities and Exchange Commission.

Also in that filing, Tellium disclosed that its headcount grew from 98 to 308 employees between Sept. 1999 and Sept. 2000. The current headcount is in the ballpark of 444, a company spokesman confirmed, meaning its burn rate has increased.

Adding grist to that mill is the unconfirmed rumor that the SEC has raised the issue of stock warrants issued to Tellium customers. Such issues may have been raised in the regular correspondence with the SEC during the filing period. As policy, the SEC does not respond to questions about such correspondence, except through Freedom of Information Act (FOIA) requests, which Light Reading has filed (The SEC takes 10 weeks or more to respond to such requests).

According to its most recent SEC filing, Tellium has three customers: Qwest Communications International Corp. (NYSE: Q), Dynegy Inc. (NYSE: DYN), and Cable and Wireless (NYSE: CWP). Two of those firms, Qwest and Dynegy, are Tellium shareholders.

In Dynegy’s case, some of its Tellium shares vest more quickly depending on how much Tellium gear it’s buying at a given time. In Qwest’s case, not only did Qwest get warrants for agreeing to buy Tellium’s gear, but Tellium has also issued nearly $10 million worth of stock options to seven unnamed Qwest officers, which can be exercised 90 days after shares begin selling on the public market (see All Eyes on Tellium IPO).

Representatives for Morgan Stanley and Goldman Sachs did not return calls for comment for this report. Tellium representatives would not comment on its bankers and said that its upcoming S-1 filing would address any changes the company may have made.

-- Phil Harvey, senior editor, Light Reading

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