With all that converging going on, we give you the Top Ten Mergers & Acquisitions of 2004:
No. 10: BT/Infonet
U.K. incumbent BT Group plc (NYSE: BTY; London: BTA)in November swallowed up international services provider Infonet Services Corp. (NYSE: IN) for $965 million in cash, or $2.06 for each of Infonet's 468 million shares (see BT Buys Infonet). Infonet will ultimately be merged with BT's Global Services division and will extend BT's global reach into North American and Asia/Pacific markets. Ah, the Empire lives on. No. 9: Ciena/Catena and Internet Photonics
In May, compulsive shopper of the telecom equipment space, Ciena Corp. (Nasdaq: CIEN), bought Catena Networks for 75.9 million Ciena shares and Internet Photonics for 24.1 million shares (see Ciena Completes Acquisitions). It was enough to drive some Ciena critics crazy -- because they see Ciena as an undisciplined M&A player with a mixed track record.
Ciena CEO Gary Smith, CEO, Ciena hasn't wavered on Ciena's acquisiton strategy, saying "doing nothing would have been scarier." His motto is "diversification," and the Catena acquisition got Ciena a piece of the access business, while Internet Photonics supplied it with a cable equipment play.
No. 8: Telcordia/Granite
After long heralding its strategy to expand through acquisitions, OSS giant Telcordia Technologies Inc. walked the walk in May by purchasing Granite Systems, one of the leading inventory management systems vendors (see Telcordia Acquires Granite). The deal gives Telcordia a strong foothold in the inventory management space -- probably the hottest OSS market at present.
In November, Telcordia went from fish to bait as it was sold by its parent company, Science Applications International Corp. (SAIC), to buyout firms Warburg Pincus and Providence Equity Partners for $1.35 billion (see SAIC Sells Telcordia and Boston Group Benefits From Integration).
No. 7: Lucent/Telica
In August, Lucent Technologies Inc. (NYSE: LU) bought switching vendor Telica in a stock deal worth $295 million (see Lucent Completes Telica Acquisition).
While modest in size, this deal was important because it demonstrated that Lucent is ready to get back in the acquisition game after being burned by high-profile deals in the bubble years. It also demonstrates the clear need for softswitching technology, as legacy equipment providers like Lucent try to migrate toward IP-based technology.
Heavy Reading analyst Graham Beniston called Telica a “first-rate” softswitch and media gateway vendor. Lucent believes that the addition of Telica’s product will strengthen its own portfolio of networks that deliver voice, video, and data.
No. 6: Cisco’s Security Blanket
Cisco Systems Inc.'s (Nasdaq: CSCO) acquisitions during 2004 centered on the security and services market as it picked up four players for under $200 million.
In November, the networking giant gave $16 million for security management firm Jahi Networks (see Cisco Jumps on Jahi). In September, it acquired NetSolve for $128.5 million (see Cisco Nabs NetSolve) and announced that it would buy Perfigo Inc. for $74 million (see Cisco Bolsters Its Security Story ). In March, Cisco said it would acquire Twingo Systems for $5 million in cash.
The company's acquisition of Procket Networks was more controversial, as Cisco has never before bought a competitor for its software code (see Valley Wonk: The Procket Puzzle). But, as an overall strategy, Cisco's security and services buys all seem aimed at making it a more solid networking provider and giving its customers fewer reasons to shop elsewhere.
No. 5: Tekelec/Taqua, Santera, and VocalData
Signaling software and gateway vendor Tekelec Inc. (Nasdaq: TKLC) has reinvented itself in the past 18 months with a series of acquisitions in the next-generation voice switching and IP applications sector. Tekelec is hot on softswitching and consequently has built a Switching Solutions Group by buying Santera, Taqua, and most recently VocalData Inc. This is expected to provide growth as carriers switch over to IP-based switching systems (see Tekelec Tests Softswitch Waters, Tekelec Is Buying Taqua, and Tekelec Connects With VocalData).
So far, early returns are positive, and revenue is indeed starting to ramp, with the company recently posting its first $100 million quarter (see Tekelec Tops $100M).
No. 4: Cisco/P-Cube
There's nothing like a Cisco Systems Inc. (Nasdaq: CSCO) acquisition to ratify a new market. In October, Cisco closed the deal to acquire privately held P-Cube, a developer of IP service control platforms, for $200 million (see Cisco Completes P-Cube Acquisition).
The acquisition gives Cisco the tools to investigate the traffic stream, giving service providers precise control over how their networks are being used. In fact, whether it was a self-fulfilling prophecy or not, Cisco’s purchase of P-Cube looks to have legitimized the entire traffic management technology market while giving Cisco the strongest company in the space.
The P-Cube aquisition has sparked speculation over what traffic management company will be acquired next. Candidates still looking for a dance partner include Allot Communications, Ellacoya Networks Inc., Packeteer Inc. (Nasdaq: PKTR), and Sandvine Inc.
No. 3: Mobile Mergers
Nobody knows which specific mobile services will be big money makers in the next several years, but one thing is certain: The carrier that reaches the most people with the most wireless bandwidth will be in the best position to make a killing. More importantly, the convergence of wireline and wireless networks will lead to services that can follow people anywhere, which will encourage more network usage, more often, resulting in more carrier dollars.
So it wasn't surprising to see that, in February, Cingular Wireless acquired AT&T Wireless Services Inc. (NYSE: AWE) for $41 billion (see Cingular Buys AT&T Wireless). Cingular became thereby the largest wireless carrier, with 46 million customers and coverage in 49 states and 97 of the top 100 markets.
More markets, more bandwidth, more money.
In early December Sprint Wireless (NYSE: PCS) and Nextel Communications Inc. (Nasdaq: NXTL) announced the two would form a new company called Sprint-Nextel in a merger valued at $35 billion (see Sprint, Nextel Confirm Merger). Together they will have more than 35 million wireless subscribers, and 5 million additional subscribers through affiliates and partners.
Unstrung believes Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Ltd. (NYSE/Toronto: NT) could be the big beneficiaries of the merger. The main loser in all of this will likely be Motorola Inc. (NYSE: MOT), which is the sole supplier of Nextel's iDEN network equipment (see Nextel-Sprint: Winners & Losers and Deal Solves Nextel 3G Dilemma).
No. 2: Juniper/Netscreen
In February, IP routing powerhouse Juniper Networks Inc. (Nasdaq: JNPR) acquired network security vendor NetScreen Technologies for about $4 billion in stock (see Juniper to Acquire NetScreen). The acquisition was one of the boldest of the year, because it meant that Juniper would be diving straight into the enterprise security market, going head-to-head with archrival Cisco, as well as other large security players such as Check Point Software Technologies Ltd. (Nasdaq: CHKP).
NetScreen's technology, when added to Juniper's routers, creates the kind of integrated, intelligent routing device that should help drive Juniper's Infranet initiative. The acquisition closed in 75 days, by most accounts went smoothly, and is already boosting Juniper's revenues.
The big question: Was this just one big deal for Juniper, or the start of a multi-year, multi-pronged acquisition strategy to assault Cisco's enterprise networking position?
No. 1: Tellabs/AFC
The year's most popular M&A soap opera had to be Tellabs Inc.'s (Nasdaq: TLAB; Frankfurt: BTLA) troubled six-month courtship of Advanced Fibre Communications Inc. (AFC), a deal that was finally closed in November for around $1.5 million (see Tellabs & AFC: Together at Last!).
When the deal was first announced on May 20, Tellabs' share price crashed by 13 percent (see Tellabs Buys AFC for $1.9 Billion). Shortly thereafter, AFC’s planned FTTP deal with Verizon Communications Inc. (NYSE: VZ) began losing its shine. Sources say AFC's margins with Verizon are suffering, and analysts have said that AFC is actually selling some products at a loss.
Throughout the summer, such issues became the favorite topics of discussions with hot-money hedge fund managers trying to arbitrage whether or not the deal would go through. Light Reading was the first to break the story that it would be renegotiated (see Tellabs/AFC: The Ever-Shrinking Deal?, Tellabs Calm Over AFC Hiccup, and Is the Tellabs-AFC Deal in Danger?).
After Wall Street soured on the deal, it became clear that something would have to be done, and Tellabs renegotiated the purchase price from $1.9 million to $1.5 million. It finally closed in late November.
The current pace and character of M&A activity is likely to continue, as valuations have stabilized and folks have a better sense of what companies are "worth," according to a recent Light Reading Insider titled "M&A: Consolidation Craze" (see When Will Cisco Go Soft? and LR M&A Strategy Finalists Step Up ). In most cases, the industry has returned to more rational valuations, and those companies with premium valuations, such as Cisco and Juniper, will keep using their stock to acquire companies.
That Insider pointed out that the current M&A climate is a slow but reasonable process that is likely to help the industry improve its health. Indeed, if networks are supposed to be converging, the number of carriers and equipment vendors has to get smaller (and more profitable).
— The Staff, Light Reading