Optical/IP Networks

Alcatel Seeks to Buy Optical Startup

Alcatel SA (NYSE: ALA) is feverishly scouring U.S. turf for a metro optical networking startup, and is close to buying a private company for between $1 billion and $2 billion, according to multiple Light Reading sources.

The most likely candidate to emerge so far is Astral Point Communications Inc., although Alcatel is said to have also been talking to Alidian Networks Inc., Geyser Networks Inc., and Zaffire Inc.. All of these companies are private. Neither Alcatel nor Astral Point officials had a comment on a potential deal.

Alcatel is looking for a startup that will give it optical technology for the metropolitan area, and a customer contract or two, but the company isn't willing to pay the lofty prices of deals struck in frothier times (see Sycamore to Buy Sirocco for $2.9B and Chromatis Sold For $4.5 Billion), according to sources. With the stock market working in its favor, and a shakeout under way among optical networking startups, there's a good chance the company could strike a deal for under $2 billion. The stock market has knocked 50 percent off the value of emerging networking companies in the last month. In comparison, Alcatel, an established player, has fared comparatively well; its stock is only down around 25 percent from its high this year.

"Alcatel appears to think the longer they wait the cheaper Astral Point will get," said one source in the industry, asking to remain unnamed.

Astral Point is among the dozens of startups hoping to survive the shakeout. It, along with Alidian, has surfaced as the subject of previous acquisition talks (see Astral Point Explores Its Options and Astral Point Plays Survivor). Astral Point was spurned by Sycamore Networks Inc. (Nasdaq: SCMR) when that company bought Sirocco instead. Astral Point markets a multiservice telecom switch and has landed two customer contracts, but the common knock against the company is that its box is heavily based on asynchronous transfer mode (ATM) technology, and that its customers own stock in the company. Astral Point officials decline to say whether they have issued stock or warrants in their company to Time Warner Telecom Inc. (Nasdaq: TWTC), or to their other customer, Advanced TelCom Group Inc. (see Astral Point, ATG Ink Big Deal). Skeptics were surprised to see the company land a $100 million deal with Time Warner -- a deal that might further pique Alcatel's interest (see Astral Point Plays Survivor).

-- R. Scott Raynovich, executive editor, Light Reading
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