Alcatel Acquires Astral Point -- Cheap

Good things come to those who wait. Over a year after Alcatel SA (NYSE: ALA; Paris: CGEP:PA) first put out feelers to purchase Astral Point Communications Inc., it's agreed to buy the startup for stock worth a mere $135 million (see Alcatel To Buy Astral Point).

Alcatel says the acquisition will increase its strength in the U.S. metro Sonet market. Astral Point, founded in 1998 and based in Chelmsford, Mass., makes a multiservice provisioning platform that combines a crossconnect with DWDM and Sonet add/drop multiplexing capabilities.

Reportedly, Alcatel got as far as drawing up papers on the deal last year, but top execs backed out, possibly because Alcatel's other activities interfered (see Alcatel Seeks to Buy Optical Startup, which we summarized in November 2000 as follows: Something optical, metropolitan, and cheap, s'il vous plait. Astral Point, perhaps?).

Over a year later, the buyer's clearly got a bargain. Terms of this acquisition are substantially lower than comparable agreements -- such as the $355 million recently laid out by Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) for Ocular Networks (see Tellabs Nabs Ocular) or the $421 million Nokia Corp. (NYSE: NOK) bid for Amber Networks in July (see Nokia Nabs Amber for $421M).

Is more than the downturn at work here? Was this a "fire sale," in which lack of new funding forced the startup to sell out or go bust?

The startup's not saying that, but it's clearly had its problems. Despite $115 million in venture funding, it's generating just $4.5 million in revenues annually to a handful of customers. In addition, there have been ups and downs with those customers, the cancellation of an early product, and layoffs (see Astral Point Slims Down). The startup's now down to 175 employees from 250 last year. Alcatel says it hopes to hold onto the existing workers, particularly in management and R&D.

"There's a lot of cutback in the metro space," says Steve Kamman of CIBC World Markets. "As a result, VCs are telling us a lot of startups will just plain get cut off this year."

Alcatel, obviously pleased with the purchase, didn't dwell on the price with analysts and media today. "We had to do something on the Sonet side of our business, and this is positive for us all," said Christian Reinaudo, president of Alcatel's optics activities, in a conference call this morning.

Reinaudo said Alcatel hopes to use Astral Point's product to buttress its own line of metro products, including the 1680 Optical Gateway Cross-Connect (OGX).

He said it was important that the startup was able to demonstrate shipping products -- even though only one of its products, the ON 5000, is actually shipping. The ON 7000, announced last year, is presently in beta test with several prospects, including one ILEC (see Astral Redirects Its Point, Astral Point Starts ILEC Beta, and Astral Point Starts Beta Test). It is expected to ship commercially this quarter.

Astral Point added Sonet STS1 grooming capabilities to its platform with the unveiling of the ON 7000 last year, about the same time rumors first surfaced that Alcatel had come calling.

Alcatel plans to begin selling Astral Point products as-is from its U.S. headquarters, migrating them into Alcatel's network management system within six to eight months. Alcatel also plans to integrate Astral Point's technology into its hardware, using the startup's DWDM and Sonet grooming capabilities to add density to existing Alcatel gear.

Some observers applaud the acquisition, despite the lowball figure. "Wow, that's a low price," says Frank Dzubeck, president of Communications Network Architects (no Website), who acts as an advisor to Astral Point but apparently hadn't heard the published sales figure. "But it's a good fit."

Dzubeck says Astral Point's knowledge of ATM (which he says was a key part of its now-superseded original product) was vital to the choice, since Alcatel relies heavily on ATM in its products.

Also key were Astral Point's early entry to the multiservice provisioning market and its entrée with RBOCs through its certification efforts (see Astral Point Extends OSMINE Effort and Astral Point Wins ISO Certification).

"Astral Point's gotten into RBOC labs, which Alcatel dreams of," Dzubeck says. Despite its ATM orientation, Alcatel hasn't penetrated RBOC networks, which are also ATM-based, to an extent anywhere near to its liking.

Astral Point is only the second optical networking vendor Alcatel's bought within recent months. Indeed, the vendor seemed to lose its optical appetite after acquiring component maker Kymata Ltd. in September 2001 (see Alcatel Optronics Acquires Kymata). But the price was right. And Alcatel apparently thinks it needs the Sonet provisioning capabilities Astral Point has to offer.

Reinaudo stressed this point today, saying Alcatel's acting on forecasts that Sonet will continue to dominate carriers' networks in North America for the foreseeable future. By 2004, Alcatel says, two-thirds of the North American metro optical transport market will still be Sonet-based.

Dzubeck says it's a market that's heating up, driven largely by ongoing developments in streaming video. Multiservice provisioning platforms will likely get scooped up by larger players as demand for metro bandwidth increases due to streaming media applications. "This isn't the last acquisition you'll see in this space, by Alcatel or anyone else," he says.

Alcatel says the acquisition, which is expected to close this quarter, won't affect Alcatel's financials for 2002, but the company hopes to start realizing revenues from Astral Point's products in 2003.

At press time, Alcatel shares were trading at $15.29, down $0.40 (2.55%). — Mary Jander, Senior Editor, Light Reading
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flanker 12/4/2012 | 11:01:33 PM
re: Alcatel Acquires Astral Point -- Cheap Didnt mean to be so lewd, rude and crude and in the post. I think you can reverse engineer a ballpark of shares issued per round based on Lu Alum's post and AstralPoint's press releases.

flanker 12/4/2012 | 11:01:36 PM
re: Alcatel Acquires Astral Point -- Cheap Myresearch:

I'll give you a "C+" for being aggressive enough to tackle dilution. but there are a lot of posters looking at your note and scratching their heads.

1) Where are your assumptions? You have definitely assumed a lot regarding liquidity preferences which is not explained in the post.
2) There seems to be a mistake in the round 2 calculation.
3) What about Titanic Optics original question about exercising options? No one asked for a demonstration on the effects of dilution.

aurora 12/4/2012 | 11:01:36 PM
re: Alcatel Acquires Astral Point -- Cheap >>I think he was referring to my earlier post
>>and gee, I thought 50lbs was pretty good for
>>a 120lb woman. Maybe someone is feeling
>>hostile today?

Well I can't speak for him. Maybe he didn't know you were female.

50lbs is pretty good lift for a woman, by the way.

And 120lbs is a pretty good woman to lift. I'd give it a try if you let me!

flanker 12/4/2012 | 11:01:37 PM
re: Alcatel Acquires Astral Point -- Cheap Thanks for the great analysis. But I dont
understand your second post on the percentages:
Can you explain?

Yes. I dont know if you read all the posts but the question was not how to calculate share allocations for each round of financing, but to estimate how shares were distributed during a liquidity event.

The example states that total shares issued and authorized were 24mln+ and we were not dealing with anti-dilution provisions. Thus, the percentages reflect shares issued per round as a percentage of TOTAL shares authorized AND outstanding AFTER the last round or financing ... to reflect the percentage of the company each investor held at liquadation, not at closing of each respective round.

To present the example any other way would confuse the living daylights out of the readers and not address the bottom line question as to how and at what price option holders exercise.

As I mentioned in an earlier post, you can use any final share allocation you like (24mln, 50mln, 100mln) and recalculate the percentage interest held by each investor - since some readers dont think 24mln shares issued is realistic. However, arriving at a realistic number of shares issued isnt the point of the example either. The point was to show liquidity preference and at what price option holders could exercise.

hope that helps


Lafite 12/4/2012 | 11:01:38 PM
re: Alcatel Acquires Astral Point -- Cheap There was a rumor posted to this board about the two possibly getting together, if you go back and read through all the posts on this string.

I can't really say who I work for. Let's just
say I am an 'interested party'.
MA Headhunter 12/4/2012 | 11:01:40 PM
re: Alcatel Acquires Astral Point -- Cheap More than one ex Avici person has mentioned that the IP backbone is made up of Avici gear. I am not sure about the remainder. LU Springtide had been in there...
realdeal 12/4/2012 | 11:01:42 PM
re: Alcatel Acquires Astral Point -- Cheap Anyone know who's gear AT&T is deploying here?


darnlucky 12/4/2012 | 11:01:46 PM
re: Alcatel Acquires Astral Point -- Cheap Can anyone please provide a reasonable rationale as to why Ciena would want Equipe?

I haven't seen anything about Ciena and equipe. What's the scoop? Why were you at Equipe, are you a customer then if you're not a competitor?
glowingduck 12/4/2012 | 11:01:48 PM
re: Alcatel Acquires Astral Point -- Cheap "I would bet that not one of the naysayers has seen the 7000, heard customer feedback or been involved in testing of it. I am not one of the employees there but know enough people and about the product to know that people on this thread are blowing warm air."

Warm air is the only thing keeping this industry alive! Well, that and internet porno!
Lafite 12/4/2012 | 11:01:48 PM
re: Alcatel Acquires Astral Point -- Cheap Can anyone please provide a reasonable
rationale as to why Ciena would want Equipe?

I visited Equipe several months back, and
they had a very cool box exterior, but when
we looked inside it, there was nothing there!
It looked like it hadn't been built...and no,
I don't work for a competitor, so I sincerely
doubt they yanked it to keep it from prying eyes.
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