Optical/IP Networks

ECI to Buy Laurel for $88M

ECI Telecom Ltd. (Nasdaq/NM: ECIL) is to buy B-RAS vendor Laurel Networks Inc. for $88 million in cash (see ECI Buys Laurel Networks).

Today's announcement follows months of negotiations that Light Reading believes were concluded early last week (see ECI Closing in on Laurel). The deal, expected to close within a few weeks, brings Laurel's technology, 150 staff, and $9 million in cash, giving the deal a $79 million net worth.

That's just more than four times Laurel's 2004 revenues of $18 million, derived from customers such as Level 3 Communications Inc. (Nasdaq: LVLT) and Korean carriers Dacom Corp. and KT Corp. (Korea Telecom), among others (see Laurel Scores at Level 3, Laurel Dates Dacom, Laurel Wraps Up KT Deal, and Laurel Lands Grande Deal ).

The move also represents ECI's latest attempt to challenge the industry's larger vendors. The company knows it needs to ramp up its IP capabilities if it is to win large carrier deals in competition with the likes of Alcatel (NYSE: ALA; Paris: CGEP:PA), Cisco Systems Inc. (Nasdaq: CSCO), Huawei Technologies Co. Ltd., and Siemens Communications Group, and has been vocal about its plans to acquire additional capabilities (see ECI Lines Up Acquisitions).

Late last year ECI invested in core IP router vendor Chiaro Networks Inc., and a full takeover looks likely (see Chiaro Lands ECI Investment). The acquisition of Laurel will give ECI an edge router with broadband remote access server (B-RAS) capabilities it can offer in conjunction with its Hi-Focus multiservice access gateway (see Laurel Joins B-RAS Pack, Laurel Steps Up on the Edge, and ECI Extends Broadband Access Portfolio). In addition, Laurel has recently been promoting its technology as video-friendly in an effort to attract carriers looking to provide IP video and IPTV services (see Laurel Pumps Up IPTV Plans). That will fit neatly into ECI's plans to target operators planning triple-play (voice, video, and data) service bundles.

ECI executives weren't immediately available to talk about the acquisition or about where else ECI might turn its M&A attentions. The company will hold a conference call regarding the Laurel acquisition at 3pm Eastern Standard Time (EST).

The deal appears to have come just in time for Laurel, which has only $9 million left in the bank. Without the acquisition, it could have ended up on the B-RAS scrapheap, or been bought for peanuts -- a fate that has befallen several other B-RAS players (see Tut to Acquire Copper Mountain and Tut's CoSine Deal Drags On).

That situation will likely have helped ECI broker a price that falls below Laurel's total funding to date, and is much lower than the $200 million-plus that some VCs had predicted. Laurel has raised $118 million in backing, including funds from venture capitalists and equipment vendor Ciena Corp. (Nasdaq: CIEN), which has been reselling Laurel's gear (see Ciena Takes Stake in Laurel and Ciena, Laurel Win in Spain).

Investors and carriers will want to know what will come of that relationship, and Laurel's current partnership with Marconi Corp. plc (Nasdaq: MRCIY; London: MONI), a head-to-head rival of ECI in the optical and access markets (see Laurel & Marconi Make It Official).

Heavy Reading analyst at large Graham Beniston believes there's little downside to this deal, and that ECI is acquiring a company with "very creditable technology. It leads many of the other B-RAS vendors in terms of scaleability." Adds Beniston, "This gives ECI a solution set to challenge the Marconis of this world."

— Ray Le Maistre, International News Editor, Light Reading

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