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Optical/IP

Deal Talk Boosts Riverstone, LR Index

As the rumor mill churns, the Light Reading Index burns. Talk of potential deals appears to be driving action in the telecom equipment sector. The rumor du jour: Alcatel SA (NYSE: ALA; Paris: CGEP:PA) kicking the tires at Riverstone Networks Inc. (Nasdaq: RSTN).

The rumor is being taken with a grain of salt by many. Alcatel has a reputation for being finicky and talking to just about every company in North America. For example, Alcatel's last deal, to buy Astral Point for $135M, was nearly two years in the making (see Alcatel Acquires Astral Point -- Cheap and Alcatel Seeks to Buy Optical Startup).

"There have been so many 'Alcatel/Somebody' rumors, I don't pay any attention anymore," says one hedge fund manager who declined to be named.

The potential merger would make sense. Alcatel has been hunting for some metro Ethernet gear ever since its Packet Engines division imploded (see Alcatel's Packet Engines Break Down). And according to analysts covering Riverstone, Alcatel and Riverstone signed a reseller agreement back in January. In this agreement, Alcatel has agreed to resell Riverstone’s equipment through its sales channel. It’s not known if the boxes will be sold under the Riverstone label or under Alcatel’s.

Riverstone stock has risen 50 percent this week on talk of the deal. Meanwhile, other M&A scuttlebutt -- such as Cisco Systems Inc. (Nasdaq: CSCO) possibly buying Sonus Networks Inc. (Nasdaq: SONS) -- may be contributing to the sense that the telecommunications industry is bottoming (see Cisco Eyeing Sonus). The Light Reading Index has risen nearly 20 percent in the past week.

Talks between Alcatel and Riverstone appear be in the very early stages, say Wall Street sources who asked not to be named.

”This is far from a done deal,” says one analyst. “There’s a big difference between having interest and writing a check.”

Both Alcatel and Riverstone have refused to comment directly on the rumors.

Of all the hints as to a possible deal, the secretive reseller agreement may be the biggest.

Analysts like Sam Wilson of Merrill Lynch & Co. Inc. say that the reseller agreement is common knowledge on the Street. But neither Alcatel nor Riverstone have announced it, and neither would comment. While the reseller agreement may still be hush-hush, the two companies have announced interoperability between Alcatel ATM switches and Riverstone’s RS8600.

The closest that Alcatel has come to having an Ethernet portfolio is through its 1999 acquisition of Xylan, an Etherent switch startup focused on enterprise IP voice applications. But Bill Flanagan, a principal analyst with market research firm Burton Group, says the Xylan products aren’t enough for the metro market.

”Riverstone’s products would complement what Alcatel already has,” he says. “Riverstone has hybrid fiber coax cabling, and that works well with Alcatel’s DSL offering. The Omni products from Xylan weren’t designed for that.”

While the acquisition might seem like a good fit for Alcatel, it wouldn’t necessarily make that much sense for Riverstone, say observers.

“There is no balance-sheet reason why the company would have to sell itself,” says Merrill Lynch’s Wilson. “Strategically, it’s a good fit for Alcatel and for others. But typically, companies don’t want to sell just because there is a minor hiccup in their business.”

In fact, sources have indicated that Alcatel approached Riverstone this summer about a possible acquisition, but Riverstone’s management declined the offer.

A Riverstone spokesperson says he has no knowledge of previous talks and declined to comment on the current rumors. But a spokesperson from Alcatel indicates it wouldn’t be too farfetched.

“We have discussions with lots of companies,” says Alcatel's Brian Murphy. “It wouldn’t surprise me if we had discussions with them in the past.”

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com
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Steve Saunders 12/4/2012 | 10:49:31 PM
re: Deal Talk Boosts Riverstone, LR Index I wouldn't describe Alcatel as finicky. They bought Xylan.
Iipoed 12/4/2012 | 10:49:31 PM
re: Deal Talk Boosts Riverstone, LR Index Makes sense. Of course Alcatel could have bought Riverstone and Entersys when they were cabletron for $3.00 per share. Now they want to pay twice as much for one half the assets. Same old technology at Riverstone except they painted it a different color than the old Cabletron Beige.

Two sharp companies Riverstone and Alcatel. They should really take off now. I bet Cisco is really worried now.
Juniper should merge with Foundry, Extreme and Ciena then buy Nortel and really confuse Cisco.
Scott Raynovich 12/4/2012 | 10:49:30 PM
re: Deal Talk Boosts Riverstone, LR Index Finicky (adj): requiring much care, precision, or attentive effort.

doesn't necessarily mean smart!
Iipoed 12/4/2012 | 10:49:29 PM
re: Deal Talk Boosts Riverstone, LR Index or for that matter whatever happened to the Berkeley IP switch to compete with Foundry and Extreme?
skeptic 12/4/2012 | 10:49:29 PM
re: Deal Talk Boosts Riverstone, LR Index I wouldn't describe Alcatel as finicky. They bought Xylan.
-----------------
The word that explains that particular deal
is "cheap" rather than finicky. They wanted
to buy something. Everything that they really
wanted was too expensive, so they ended up
with Xylan which was at the "right" price
for how much money they wanted to spend.

Just out of curiousity, does anyone know
whatever happened to the edge router alcatel
had in development?

theanswer 12/4/2012 | 10:49:28 PM
re: Deal Talk Boosts Riverstone, LR Index All of the products that Riverstone has of interest has a star * beside it (under development). This would indicate they don't have an edge on anyone yet and if Alcatel buys them to early, then a competitor may make this deal look bad in the long run.
Alcatel, Cisco, Nortel and the likes have made these ill fated choices several times in the last few years.
puddnhead_wilson 12/4/2012 | 10:49:28 PM
re: Deal Talk Boosts Riverstone, LR Index >I bet Cisco is really worried now.
Juniper should merge with Foundry, Extreme and Ciena then buy Nortel and really confuse Cisco.

and me too. I own two of those companies, and I would bail if anything remotely resembling what you describe happened. Do you have any appreciation how hard it is to merge just two companies?

Whatever it is you're smoking, I want some of it! :)
CRC_Check 12/4/2012 | 10:49:27 PM
re: Deal Talk Boosts Riverstone, LR Index >I bet Cisco is really worried now.
Juniper should merge with Foundry, Extreme and Ciena then buy Nortel and really confuse Cisco

Yeah but Equipe with its Cascade powertrain
and product going nowhere should be pretty
interesting to LU with it's nowhere
portfolio.

Afterall LU bought in Cascade / Ascend
stuff before so Equipe engineering should
just fit right in.

LU is probably too cash poor to pay very
for them though.

-C
terrarooter 12/4/2012 | 10:49:25 PM
re: Deal Talk Boosts Riverstone, LR Index
Problem is LU's already been to
"nowhere". Remember they already
canned their Abrizio based switch.
Equipe though, is still hanging
on to the lame switch. No choice
I guess.

I suspect we'll soon be "unequiped" huh ?
Litewave 12/4/2012 | 10:49:17 PM
re: Deal Talk Boosts Riverstone, LR Index First Xlyan, then Packet Engines, and now Riverstone?

Only if Riverstone wants to be thrust into oblivion.
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