Tellabs Still Stands Alone
Nokia Networks and Nortel Networks Ltd. have both seen weakness in the second quarter, and that's likely to delay any deal in the near term, according to a research note issued today by UBS AG analyst Nikos Theodosopoulos.
In July, it was reported that Nokia Siemens was interested in Tellabs, and was offering $16 to $17 per share for the company. Late last month, Nortel threw its hat in the ring, offering $14 to $15 per share, according to one source. (See Is Nokia Siemens Tailing Tellabs?, Tellabs Mum on M&A Talks, and Nortel Takes a Look at Tellabs.)
Those scenarios have cooled, according to Theodosopoulos. "Following a weak 2Q, NSN is likely to focus on integrating the two companies rather than large M&A," he writes in today's note. "NT also had a weak 2Q, resulting in a sagging stock price, while a weak credit environment would make a debt offering for M&A much more expensive for NT."
Theodosopoulos lowered his price target for Tellabs from $14 to $11.50, due to the lower probability that the company will be bought in the short term. The $14 target, he notes, reflected about a 20 percent premium compared to the "9.5-10x NTM EV/EBITDA take-out multiple for comparable deals."
Morgan Keegan & Company Inc. analyst Simon Leopold has also expressed skepticism that Tellabs would fetch a hefty premium above its stock price.
"Ultimately, any deal comes down to a price," he says. "I imagine there's some price where a purchase of Tellabs would be a no-brainer.
"On the fundamentals, we feel like Tellabs stock has been worth something in the neighborhood of $10 to $11, and I don't see why anyone would pay 30 or 35 percent above that."
Shares of Tellabs are down $0.05 (0.48%) to $10.34 in late afternoon trading on Tuesday.
— Ryan Lawler, Reporter, Light Reading