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Alcatel in Talks to Buy Tachion

Alcatel SA (NYSE: ALA: Paris: CGEP:PA) is in talks to acquire startup Tachion Networks, Light Reading has learned.

The deal would be worth less than $1 billion and may be completed in the next week, according to sources. Tachion, a privately held company, makes a multiservice voice and data switch. One account of the Alcatel-Tachion saga, provided anonymously to Light Reading, said the companies will close an all-stock transaction worth $750 million as early as next week. The source names Morgan Stanley Dean Witter as the investment banker involved in the deal.

A separate source close to Tachion confirmed that Morgan Stanley had approached Tachion on behalf of Alcatel in recent weeks. That source could not confirm the price of the deal nor how far the talks had progressed.

Jeff Matros, Tachion's CEO, won't confirm or deny anything beyond how the weather is outside. "We don't comment on any specific talks we've had or will have with any companies," he says.

"It's a rumor and we don't comment on rumors," says Sarah D. Compton, speaking for Alcatel. Morgan Stanley did not return calls for comment.

Matros, however, didn't go so far as to dismiss the notion that Tachion had been approached for acquisition. "Every startup is up for sale, and any CEO that tells you otherwise is hallucinating. The day you're born is the day that you're for sale. We've been in discussions with lots of big central office vendors for 18 months or so for various types of relationships," he says.

The talks are, in fact, a resumption of an old courtship. As far back as August 1999, Alcatel had been in discussions with Tachion concerning a possible acquisition, according to several sources. At the time, Alcatel's Switching and Routing Division was said to have been evaluating other startups in the voice/data convergence space, including Sonus Networks Inc. (Nasdaq: SONS), Convergent Networks Inc., and Santera Systems Inc..

Alcatel's original talks with Tachion dissolved toward the end of 1999, around the time Newbridge Networks Corp. (NYSE: NN; Toronto: NNC) began shopping itself for acquisition. With its broader product line and an installed base of carrier customers, Newbridge turned out to be a safer bet than a startup. In February, Alcatel acquired Newbridge in a stock transaction valued at $7.1 billion.

In the meantime, Tachion, thanks largely to its aggressive marketing and public relations efforts, was attracting glances from other large equipment vendors: Marconi Communications PLC (Nasdaq/London: MONI), Fujitsu Ltd. (KLS: FUJI.KL), Nortel Networks Corp. (NYSE/Toronto: NT), Siemens AG (Frankfurt: SIE), Sonus Networks Inc. (Nasdaq: SONS), and Zhone Technologies Inc..

By the Fall of 2000, Alcatel and Newbridge had yet to produce a next-generation switch capable of combining frame relay, IP, ATM, SS7 signaling, voice services, and an integrated Sonet add-drop multiplexer. At the same time, Tachion was missing engineering deadlines, its two founders left the company and their board seats, and a turbulent stock market forced it to postpone a highly anticipated IPO and seek financing elsewhere (see Tachion Tackles Its Critics).

On behalf of Tachion, sources say, Morgan Stanley approached Alcatel to renew acquisition talks. MSDW was also the bank Newbridge had hired when it began to look for a buyer.

Tachion's Matros acknowledges that, since Tachion put off its IPO, several salespeople have left the company. "It's absolutely true," he says. "That's happening to every company I know that has delayed their IPO. We had a product delay, and we're not where we wanted to be on that front. As a sales guy, even if you're getting paid a lot of money, you really want to be building networks and helping customers."

Tachion's products are in trials with TelePacific, Gabriel Communications (a Tachion investor where Tachion board member Roy Wilkens also holds a board seat), and ACD.net. The company expects to be making revenues in Q1 2001, and Matros says it will ship products to its first customer in "just a few weeks."

--Phil Harvey, senior editor, Light Reading http://www.lightreading.com

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mu-law 12/4/2012 | 9:02:45 PM
re: Alcatel in Talks to Buy Tachion "Tachion is obviously close to selling a few boxes..."

This is a surprising indication, expecially if it came from somewhere/one other than The Head. Any data on who's taking the plunge?

If this is true, it marks an impressive revolution in the effectiveness of their development effort that has had a history of disappointment.

At last count they were undertaking a re-write, owing to a change in host processor and RTOS. This is all while changing core logic, upon finding that no one wishes to buy non-standard AAL1-only gear. None of these events typically lend themselves to a timely product re-introduction.
Steve Saunders 12/4/2012 | 9:01:58 PM
re: Alcatel in Talks to Buy Tachion why not post that internal email here so we know for sure?

Sunil_M 12/4/2012 | 9:01:58 PM
re: Alcatel in Talks to Buy Tachion This rumor was planted by Tachion.
Company's internal email referenced the article before it was published.

Lightreading was hoodwinked.

BTW, Sources say Fusion5K still doesn't work.
Nestea Plunge 12/4/2012 | 9:01:52 PM
re: Alcatel in Talks to Buy Tachion As any good news reporter would do, the person writing this artcle I am sure made an attempt to contact Tachion Networks for a response to the allegations. In fact the article states that Tachion CEO Jeff Matros was commented for comment. Any internal posting referencing this article surely was made to downplay the rumors (true or not) that this article brings into the spotlight.

If this message was in fact a plant, what purpose would it serve? I can come up with several possible reasons, but I would like to hear your thoughts.
Harley 12/4/2012 | 8:57:22 PM
re: Alcatel in Talks to Buy Tachion Phil,

I've heard they have a few problems with the box. Additionally, it is targeted at emerging providers (e.g., CLECs), which is a dead market.

Lucent has (had) a superior product called PathStar, an IP based, class 5 switch replacement that also had routing capabilities. It won Telephony Magazine's 1999 Product of the Year.

Conclusion: Lucent quietly killed this product a week or so ago, citing the implosion in this space.

Not sure why Alacatel would want to buy into a company targeting a dead market, at least for now.

wannaberich 12/4/2012 | 8:56:59 PM
re: Alcatel in Talks to Buy Tachion I had heard this was a bogus rumor when it first came out. But I waited a month for the deal to close (as indicated in the article). How does the author have any credibilty? My sources say that Alcatel hasn't been in touch with Tachion since Dec 1999.

I also hear their box doesn't work at all..

mu-law 12/4/2012 | 8:56:57 PM
re: Alcatel in Talks to Buy Tachion "Conclusion: Lucent quietly killed this product a week or so ago, citing the implosion in this space. "

That was a convenient excuse for them. Pathstar was a kluge of equipment from the LU parts dumpster that didn't work either. If they ever get something to work it will be the APX.
crcerror 12/4/2012 | 8:54:34 PM
re: Alcatel in Talks to Buy Tachion I've been told by a couple different sources that
what remained of Tachion's sales force, including
their VP have recently left the company because of
on going product delivery problems. Anyone
heard details?
fk 12/4/2012 | 8:54:30 PM
re: Alcatel in Talks to Buy Tachion As an Alcatel shareholder, I am quite apprehensive about any such acquisition. Exactly what would be in it for Alcatel? With Xylan, DSC and Newbridge, there were some apparent benefits. With Tachion, I don't see the benefit. What does Tachion bring to the table?
Harley 12/4/2012 | 8:54:30 PM
re: Alcatel in Talks to Buy Tachion Side note: Their founder and CTO, Satish Sharma, left the company quietly about 3 months ago.
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