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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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perry1961 12/4/2012 | 10:49:16 PM
re: Deal Talk Boosts Riverstone, LR Index I've never seen sentiment take such an abrupt turn.While the index gained 20% this week,many companies in it have gained almost 100%.
Until about 6 months from the time the Fed raises interest rates again,this sector should be hot as a firecracker.The economy is showing '99 type GDP gains,and all signs point to increased Capex spending ahead.
Since fiber was the hardest hit sector in the last two years,it should be the one to benefit the most over the coming year.
I'm expecting another IPO rush pretty damn quick.
deepciscothroat 12/4/2012 | 10:49:06 PM
re: Deal Talk Boosts Riverstone, LR Index Guys, I have heard that Cisco's entire cable franchise is at risk (they have not updated their CMTS platform in 4 years and are late for DOCSIS 1.1. If Alcatel has designs on cable, RS can help
cabledog 12/4/2012 | 10:49:04 PM
re: Deal Talk Boosts Riverstone, LR Index Just want to give a heads up to the guys Mr. Deep Throat is talking to. He is outright lying and if he had a clue on the industry in the cable space, which Riverstone does not, he would of changed his words.
Cisco has had the uBR10K on the market for 6 months now. It is a next generation CMTS built on the 10000 platform. It is already deployed in the top cable accounts. I know this because I work for one of those accounts!
If you happen to visit the Cablelabs website you can see all of the vendors listed, Juniper, Motorola, Nortel, Arris, Riverstone etc.. If Mr. Deepthroat had a clue he would see that Cisco is the ONLY vendor that is DOCSIS 1.1 qualified. Every other vendor has failed to do so. In the CMTS space I will always stay with Cisco. They get it. As for beyond the CMTS, well that still up in the air.
tiadakola 12/4/2012 | 10:49:03 PM
re: Deal Talk Boosts Riverstone, LR Index Yep, see www.crossbeamsys.com.
mu-law 12/4/2012 | 10:49:01 PM
re: Deal Talk Boosts Riverstone, LR Index "If Mr. Deepthroat had a clue he would see that Cisco is the ONLY vendor that is DOCSIS 1.1 qualified. Every other vendor has failed to do so."

Oh dear... looks as though cabledog has been sold a bill of goods. Shrewd vendors will solicit his contact info in hopes there are more POs to be had.

The 10K is NOT (yet) 1.1 qualified... the VXR is the only Cisco product that is/was (in CW20), but it was neither the first nor the only one. A great many more (including RSTN, IIRC!) have designed to be 1.1 compliant, regardless of whether they have gone for testing yet. Also, I predict the outcome of subsequent waves will see cisco's offering lost in the shuffle of ngCMTS vendors.
cabledog 12/4/2012 | 10:48:56 PM
re: Deal Talk Boosts Riverstone, LR Index I stand corrected. But Cisco is still the one and only vendor to be 1.1 qualified and you cannot dispute that. We will pick up the conversation after the next CW!
cabledog 12/4/2012 | 10:48:56 PM
re: Deal Talk Boosts Riverstone, LR Index Mr mu-law. I stand corrected again. I was just informed there is one other vendor out there that is 1.1 qualified although I have not heard of them before..
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