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Is Spirent Set to Be Swallowed?

Shares of the parent company of telecom test vendor Spirent Communications rose nearly 10 percent in trading on the London Stock Exchange, as takeover speculation made the rounds.

Spirent plc (NYSE: SPM; London: SPT) was thought to be entertaining a bid from Agilent Technologies Inc. (NYSE: A), according to several newswire reports. The rumor surfaced last night and seemed to be reflected in trading today.

By late afternoon in London, shares of Spirent plc had risen 8.89% and were trading at 61.25 pence (roughly US$1.00). That price may still be low, but it represents the highest Spirent's stock's gone in 2003, according to postings on the company's Website.

Spirent spokespeople say the big news is really a "market rumor." Agilent sources say they don't comment on rumor or speculation.

One financial analyst, who asked not to be named, says the real news here is fresh optimism in the telecom test equipment market. "We're seeing some pricing stability, the grey market is less daunting... That's the more important trend. The whole group [of test equipment makers] could benefit if this turns out not to be a head fake," he says.

As a case in point, he notes the quarterly report from Tektronix Inc. (NYSE: TEK) yesterday, in which that vendor reported profits and an 11 percent increase in revenues year-over-year (see Tektronix Posts Q1 Profit). "Demand was high for our mobile protocol testing tools, our industry-leading logic analyzers, and our video test products that support the advancement of digital and high-definition signals," said Tektronix CEO Rick Wills in a prepared statement.

While Agilent's quarterly report last month was decidedly mixed (see Agilent Posts Monster Q3 Loss), execs say the company's still on track for profitability before year's end.

Another analyst says the rumor of a Spirent/Agilent marriage probably started up because Spirent would be a good investment for some large company. "Spirent is well placed for an increase in network investment," says Julian Tolley of European financial services firm Durlacher, which does not sell Spirent stock. He says companies and carriers worldwide are going to start spending again soon, with up to 20 percent growth in some sectors. Spirent's in a good place, since it has test gear that touches all areas of new telecom development, from wireless to routing to network operations support. It's also the right time for companies to merge.

If Spirent were sold, Tolley says, it would be a bit expensive, thanks to its load of debt. "So it must be a big company that takes them over." According to Spirent's Website, today's market capitalization was about £577 million (roughly US$945 million). Add a premium, and you're talking big bucks.

But another analyst, Timothy M. Slevin of Parker/Hunter Inc., which also does not sell Spirent stock, says it's not clear what benefit even a large company would get from buying Spirent plc in toto. The communications business accounts for about US$400 million in annual revenues, while the other divisions, whose products include cable management and aerospace gear, bring Spirent's aggregate yearly sales to about $700 million. Whoever buys the whole thing would have to be able to digest it all, as it's not likely Spirent would lop off its biggest business.

Bottom line? It looks as if rumors about Spirent/Agilent may be hollow. What can't be denied is the stirring of new growth in the test equipment market.

— Mary Jander, Senior Editor, Light Reading

farfields 12/4/2012 | 11:24:08 PM
re: Is Spirent Set to Be Swallowed? The rumour for Agilent to be considering Spirent shows a certain lack of imagination. Agilent have been hit as hard as anyone else by the turndown, their management is still hungover from all the layoffs and business restructuring they've had to do. For Agilent to consider swallowing Spirent that would be 'Hair of the Dog'.

Here's some alternatives:
Acterna - almost given up running their own business, so why not exit Ch11 and make a bid for Spirent so that they have a revenue generating division?

Or why not consider some companies with cash in the bank:
Aeroflex - been buying some other test companies lately, let's add Spirent before someone else grabs them.
Sunrise Telecom - too much cash and not enough debt, swap the excess cash for Spirents debt. Better then putting it in the CEOs wallet.
Danaher Corp - Who? Let me rephrase that; Fluke. Done nicely from Fluke since buying in '98, and has a spare $1b in the bank.
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