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Optical/IP

Redback and Juniper Talked, Balked

It almost happened.

Redback Networks Inc. (Nasdaq: RBAK) and Juniper Networks Inc. (Nasdaq: JNPR) were a hair's breadth away from getting hitched when Juniper's stock price sank and sank the deal, at least temporarily, Light Reading has learned. On Monday Juniper made Redback an offer after extensive talks, only to have the deal collapse when Juniper's share price plummeted.

Goldman Sachs & Co. (NYSE: GS), which oversaw Redback's combination with Siara, was brought in as Redback's banker and PricewaterhouseCoopers as its auditor, the sources say. But by Wednesday, largely because of Juniper's softening shares, both sides walked away amicably and may revisit the deal in a few weeks.

Juniper's stock price has slid some $40 since February 1. Juniper shares closed down $2.75 (4.26%) to 61.81 on Thursday and were down 3.13 (5.06%) to 58.69 in midday trading Friday. In midday trading on Friday, Redback shares were down 2.38 (7.52%), at 29.19.

But wait, there's more.

Nokia Corp. (NYSE: NOK) has been looking over Redback, too. Nokia executives have stepped up communication with the company with the intent of an acquisition, but they haven't yet made an offer, according to several sources with connections to both companies. The sources confirm that Redback's talks with Nokia were initiated through its reseller relationship with Redback, with help from Randall Kruep, Redback's former sales boss who has left the company to run Procket Networks Inc. (see Kruep Leaves Redback for Procket).

In Nokia's case, a good deal of its future business rests on charging for the services it can provide when bandwidth is taken from the edge of networks, through its third-generation wireless systems, out to millions of mobile phones. Redback offers both service aggregation devices at the edge and optical transport devices to backhaul that bandwidth.

Juniper, however, might have something different in mind. Though Juniper itself is a viable alternative to Cisco Systems Inc. (Nasdaq: CSCO) in the core routing market, Redback would provide complementary technology in broadband aggregation for the edge of carrier networks.

Kleiner Perkins Caufield & Byers's Vinod Khosla, who sits on both Redback's and Juniper's boards, also lends a reason to look at the possibilities inherent in a combination of the two companies (see Vinod Khosla).

Indeed, Redback-for-sale rumors are a dime-a-dozen right now. The primary question is, could a deal possibly get done in this market climate? Though Redback's market-leading position in the subscriber management system (SMS) market and its emerging metro optical technology, the SmartEdge product, would certainly be attractive to many companies, few equipment providers are in a position to make risky acquisitions -- and shareholders are certain to rebel against share dilution in the middle of a widespread slowdown in telecom spending.

Juniper, who's share price and quarterly earnings reports have held up well, considering the disastrous state of the stock market, would certainly have a strong position in dictating the terms of the deal. That's why Juniper's share price might be the key to a deal happening.

In considering potential deals, there were plenty of skeptics. "A Redback-Juniper combination is laughable," says one New York-based hedge fund manager, asking to remain unnamed. "If Juniper's been the only one consistently putting out good numbers, why would they mess with that now?"

The deal also seems to fly in the face of Juniper CEO Scott Kriens's strategic approach. He has said in the past that Juniper will focus purely on packet-processing, rather than becoming directly involved with optical transport (see Scott Kriens ).

Redback, however, might bring out multiple suitors. High-level sources with ties to Cisco, top-tier investment banks, and Redback have all confirmed that Cisco has talked of making an offer for Redback as a defensive move to prevent any possible combination with Juniper. "[Cisco's chief strategy officer] Mike Volpi has told [Redback chairman] Pierre R. Lamond that if Juniper makes an offer, Cisco will pay more," one investor close to Cisco and Redback told Light Reading.

Interestingly enough, Cisco, the most savvy at acquiring other firms, is the longshot here. "The [Redback] team is not as interested in becoming a part of Cisco," a source with knowledge of Redback says.

So what does all this mean? Mostly it reiterates what Redback watchers have known for a while: The company isn't as surefooted now as it was when it was taking the SMS market by storm. Redback shares are down 82 percent since Oct. 1 of last year.

Redback's product mix is still shifting from its higher-margin SMS products to its lower-margin SmartEdge optical products, all at a time when carrier capital spending and inventory gluts threaten business continuity. Also, the firm's much anticipated IP packet processing cards for the SmartEdge optical platform are still a quarter or two away. Investors have punished Redback shares for the company's declining gross margins and rising days of sales outstanding.

Some industry analysts were perplexed at the suggestion that Redback and Juniper might someday combine. "Juniper doesn't need any new sales channels -- everyone knows who they are. And there are quite a few companies doing subscriber management and next-generation Sonet, so it's not clear why Juniper would want to buy [Redback] for that," remarked Scott Clavenna, president of PointEast Research LLC and director of research at Light Reading.

Redback and Goldman Sachs declined to comment for this article. Juniper, Nokia, and Cisco did not return phone calls by press time.

-- Phil Harvey, Light Reading http://www.lightreading.com
optical_maverick 12/4/2012 | 8:47:53 PM
re: Redback and Juniper Talked, Balked Q
what's the deal man, 2nd hand, 3 hand crap. read the info. enjoy what you read and if you are plugged in to the optical scene you can differentiate what sticks and what doesn't or in your terms reliable verse non reliable.

mavy
Qeyton 12/4/2012 | 8:47:54 PM
re: Redback and Juniper Talked, Balked How is it that you have so much information about offers, prices and why CEO's are let go. Are you a corporate officer of one of these companies? Are you on the board of directors? I imagine not. So, your information must be 2nd, 3rd or 4th hand, that is less than reliable. If LR wrote articles on this kind of speculation, we would be all over them. Actually, they do, and we are.
Fred Snarff 12/4/2012 | 8:47:57 PM
re: Redback and Juniper Talked, Balked >>15200, 15454, 15327, 7600 OSR, the DPT products (Pentacom) 15190, and others etc.

looks a lot like there's a few metro solutions from Cisco in that bunch to me...<<

drag:

I'm sure that's what the Cisco marketing and sales folks have been pushing too. unfortunately, the salespeople I talk to say it ain't cutting it with customers. they don't have a metro core DWDM box. I'm not talking SONET ADM - they own that. but Qeyton? are you kidding me? how long ago was that acquisition? and still no product and no customers. it doesn't work. they're even joint-bidding with other vendors in RFPs.

hey don't shoot the messenger, I'm just telling you the reality of what I hear is happening out in the trenches.

Fred Snarff 12/4/2012 | 8:47:57 PM
re: Redback and Juniper Talked, Balked
>>zaffire did turndown an offer by juniper for billions, this is why they fired there ceo at the time because he balked at 3 other buyouts on top of Juniper. how many times is zaffire going to blow it.<<

optical_dumbass:

how can a one guy (CEO) turn down 3 offers and then get fired for it? um, I thought this was the point of having a board of directors. and if that was in fact what Juniper wanted, then why didn't they buy ONI or some other metro trash? there's plenty of it out there.

wake up.

drag 12/4/2012 | 8:48:12 PM
re: Redback and Juniper Talked, Balked "You are obviously lacking in optical experience"

Man, sell some of those tickets on yourself. They sound like they're worth more than your stock options...
Dredgie 12/4/2012 | 8:48:14 PM
re: Redback and Juniper Talked, Balked Drag,

You are obviously lacking in optical experience.

Gustowind 12/4/2012 | 8:48:15 PM
re: Redback and Juniper Talked, Balked The Cisco 15200 (Queton)is a far cry from the Zaffire Z3000. We've seen both, and Cisco has a lot of work ahead of 'em.
drag 12/4/2012 | 8:48:15 PM
re: Redback and Juniper Talked, Balked 15200, 15454, 15327, 7600 OSR, the DPT products (Pentacom) 15190, and others etc.

looks a lot like there's a few metro solutions from Cisco in that bunch to me...
optical_maverick 12/4/2012 | 8:48:16 PM
re: Redback and Juniper Talked, Balked yo freddy,
zaffire did turndown an offer by juniper for billions, this is why they fired there ceo at the time because he balked at 3 other buyouts on top of Juniper. how many times is zaffire going to blow it.

mavy
Fred Snarff 12/4/2012 | 8:48:28 PM
re: Redback and Juniper Talked, Balked >>The rumor mill had Juniper making an offer of $2B for Zaffire a while back. Zaffire supposedly wanted $4B+ (like Siara) and the deal didn't happen. Both being KPMT companies, I wouldn't be surprised if someone tried to arrange a match.>>

I don't buy it. I highly doubt that Juniper will go below Layer 3. Look at the Scott Kriens interview, and everything else the management at Juniper has talked about. It's all about one thing: focus. And none of it has mentioned optical transport (Zaffire). They don't give a rat's ass about anything but selling routers - I don't care who they've invested in.

BTW: I hear both ONI and CSCO are scared to shit of Zaffire making it. I heard ONI is getting slammed right now by the few customers they have over the buggy perfromance of their product and the features of Zaffire's box.

Same with CSCO. A sales rep told me they have no solution. I don't know if Zaffire can tie their shoes on their own but this one is far from over. From what I hear in the trenches, this market is still very much up in the air.

Fred

Harley 12/4/2012 | 8:48:45 PM
re: Redback and Juniper Talked, Balked Plus....

Their CFO rocks!
silent mariner 12/4/2012 | 8:48:47 PM
re: Redback and Juniper Talked, Balked Why has SCMR shut itself out of Osmine compliant networks?
silent mariner 12/4/2012 | 8:48:48 PM
re: Redback and Juniper Talked, Balked ONI is either developing an edge box or will allign themselves with one of the emerging companies developing one. You can be sure that many of the 2-3 dozen edge box makers will get antsy soon. Not a problem, imo.
silent mariner 12/4/2012 | 8:48:48 PM
re: Redback and Juniper Talked, Balked Better be ready to settle for significantly less now.
drone387 12/4/2012 | 8:48:51 PM
re: Redback and Juniper Talked, Balked The rumor mill had Juniper making an offer of $2B for Zaffire a while back. Zaffire supposedly wanted $4B+ (like Siara) and the deal didn't happen. Both being KPMT companies, I wouldn't be surprised if someone tried to arrange a match.
boldo48 12/4/2012 | 8:48:56 PM
re: Redback and Juniper Talked, Balked You are an idiot!!!!

Dan and Desh are two of the best in the optical space. I would rather bet on people and their ability to adapt rather than the latest technology that private companies in the optical sector is hyping. It takes a lot of talent to integrate the acquisition of Sirocco the way these guys were able to do. I think in the long run, these guys will make it...they have a complete end-to-end solution.
birdieking 12/4/2012 | 8:48:58 PM
re: Redback and Juniper Talked, Balked silent mariner.....what do you base your assumptions on the crystal ball. ONI has an end to end story.....huh??? What is your definition of end to end....can they go out to the edge for low speed aggregation and drive to the core for long haul applications for OC 192...I think not. Oh, the Finisar acquisition gave ONI a ton of options at the edge...from a component level (maybe a good buy)..but from an edge play standpoint...I think not.
cubsko 12/4/2012 | 8:48:59 PM
re: Redback and Juniper Talked, Balked Juniper made an investment last year in New-access, which is now known as Zaffire.
silent mariner 12/4/2012 | 8:48:59 PM
re: Redback and Juniper Talked, Balked ONI will be able to compete because it will offer an ened to end solution to real customers. Zaffire does not have a chance unless it is taken out. eom
Dr. Freud 12/4/2012 | 8:48:59 PM
re: Redback and Juniper Talked, Balked Everyone says Zaffire will be taken out. OK, they have Kleiner Perkins backing them. So THAT justifies a valuation of >$US1bln? Only Lucent would be stupid enough to overpay for this firm, and they aren't in the market.



allidia 12/4/2012 | 8:49:00 PM
re: Redback and Juniper Talked, Balked Care to elaborate on how Juniper is backing Zaffire?
perry1961 12/4/2012 | 8:49:01 PM
re: Redback and Juniper Talked, Balked Yes,ONI and Zaffire have competing products for now,but will ONI be able to effectively compete with a product that costs half as much?
ONI's saving grace is its relationship with Brocade imo.Interconnecting SAN islands first in metro/regional areas and ultimately around the globe.
I'm just not sure there's a place for them in the metro core 5 years down the road.Juniper is backing Zaffire pretty aggressively and if there's a buyout I'm betting it's not ONI or Sycamore.
luxPath 12/4/2012 | 8:49:03 PM
re: Redback and Juniper Talked, Balked "With ONI on the long-haul side of the core router"

Might you elaborate on this? I was sure that ONI's focus/competencies were in Metro/regional optical transport solutions.
popotoafd 12/4/2012 | 8:49:06 PM
re: Redback and Juniper Talked, Balked "With ONI on the long-haul side of the core router"

Could you explain that in a little more detail or supply a link to a press release or article that does? Are you saying ONIS is getting into the long-haul business and no longer just concentrating on metro? Thanks
perry1961 12/4/2012 | 8:49:07 PM
re: Redback and Juniper Talked, Balked Let's just say what everyone is already thinking.With ONI on the long-haul side of the core router and Zaffire on the metro,where does Sycamore fit in?
Buy-out rumours are wishful thinking.Fade-out is much more likely.
oc-3072 12/4/2012 | 8:49:07 PM
re: Redback and Juniper Talked, Balked steve-
i respectfully disagree with your analysis. maybe zaffire is in a less crowded space- i'll give it to you. BUT, (and you may want to consult with your in-house research director on this...) zaffire's market is miniscule when compared to the ng sonet space. quick numbers from pioneer consulting's july 2000 report:
ng sonet (million $ in 2000/2004):
$930/$6300
multiservice dwdm (million $ in 2000/2004):
$110/$920
let's do some math (with your numbers): say there are 4 companies is zaffire's space, that would allow for an average of $230 million in revenue for each of them in 2004. assuming there are 15 companies in the ng sonet market, each would pull in an average of $420 million in 2004. that alone sends a powerful message, but we all know that there will only be a few winners in each market... meaning the ng sonet space stands to be far more lucrative for the winners than those that rise to the top of the multiservice dwdm space.
i pulled the pioneer numbers from a story that lightreading ran last summer. here's the link:
www.lightreading.com/document....
-OC-3072
Freddytecho 12/4/2012 | 8:49:09 PM
re: Redback and Juniper Talked, Balked Yes your right...the insude scoop is that Turin networks is the best of the metro-edge bunch.
jackey420 12/4/2012 | 8:49:10 PM
re: Redback and Juniper Talked, Balked Are they on your next top 10 or has the fat lady sung and if she is singing

" who would want to buy them (who do they fit into?}"

Waste Management....
allidia 12/4/2012 | 8:49:11 PM
re: Redback and Juniper Talked, Balked Why would anything under $1.5 billion be selling for a loss? I would bet that their are plenty of Zaffire employees who would rather take $1 billion
from a JNPR whose stock could double when the market rebounds versus closing doors. The question for Lightreading is will Zaffire be a top ten or has the fat lady sung. In one case you report layoffs and a management shuffle and they respond to curtail your negative report with a bogus now bankrupt customer. Then you quote an investor who says their rock solid. Which is it?
Are they on your next top 10 or has the fat lady sung and if she is singing who would want to buy them (who do they fit into?}

the advocate 12/4/2012 | 8:49:13 PM
re: Redback and Juniper Talked, Balked
cisco IS on the optical map.
optical_maverick 12/4/2012 | 8:49:13 PM
re: Redback and Juniper Talked, Balked to late for zaffire, to many shares outstanding+ valuation to high. anything under 1.5billion would basically mean a loss for investors. at least cyras was in the right market space when they sold out, but zaffire crowded space, management ISSUES= Ironbridge
Carlos_Santanas_friend 12/4/2012 | 8:49:21 PM
re: Redback and Juniper Talked, Balked Yeah - the rumour of the day on Friday was that Cisco was back at it trying to acquire ONI...

Hugh and his warring VP minions have already flipped the bird at Cisco a couple times in the past. No cultural commonality - largely Nortel-facing processes and manufacturing approach. Man - bringing ONI into the Cisco fold? I'd rather try to force-reunite Greek and Turkish Cyprus.

Too many other companies in Cisco's backyard with optical product ready to take off. Send one of those products through the Cisco channels and BOO-YAH - we have a winner!!! Just apply the Volpi/Chambers formula (acquisition target within 50 miles, target company has Cisco-friendly culture and processes, strong product, several customers ready to buy) and Cisco is on the optical map!!!
your_mama 12/4/2012 | 8:49:22 PM
re: Redback and Juniper Talked, Balked Well,

maybe zaffire can follow ONIS's example of
offering stock options to every tom-dick-harry
in any company they try to sell in..that may
still work....then people have to put up with
their 'tude...
perry1961 12/4/2012 | 8:49:22 PM
re: Redback and Juniper Talked, Balked I'd much rather see Zaffire IPO.This bear market has lots of companies(like Redback)looking for a sugar daddy.
Sure,the economy is soft and demand isn't what it was last year,so what? Nobody promised the insiders they'd be multi-millionaires overnight,did they?
the advocate 12/4/2012 | 8:49:22 PM
re: Redback and Juniper Talked, Balked zaffire = letterman or latenight material
allidia 12/4/2012 | 8:49:23 PM
re: Redback and Juniper Talked, Balked JNPR buying ONIS makes some sense in that ONIS has revenue, increased their guidance for 2001, and has many customers. Zaffire doesn't make sense unless it's really cheap. They probably figure they are worth Cyras numbers (Today's dollars $1.8 billion)Zaffire has more problems than Cyras did and at a worse time in the market so we could discount that price to $1 billion. No Customers and No real revenue in sight makes that unlikely now. Companies won't take the risks now on buying start ups until they ship revenue. IMO
Zaffire needs to make progress along those lines before the year is out and before the $$ runs out.
Maybe they will.
Snorkel 12/4/2012 | 8:49:24 PM
re: Redback and Juniper Talked, Balked Heard Zaffire is giving ONIS a run for its money. Lots of SPs unhappy with ONI attitude. A Juniper/ONIS or Zaffire acquistion makes sense to me. The price would be right.
Snorkel 12/4/2012 | 8:49:24 PM
re: Redback and Juniper Talked, Balked Heard Zaffire is giving ONIS a run for its money. Lots of SPs unhappy with ONI attitude. A Juniper/ONIS or Zaffire acquistion makes sense to me. The price would be right.
birdieking 12/4/2012 | 8:49:25 PM
re: Redback and Juniper Talked, Balked in yesterday's boston globe Desh made a statement that they are building an anchor company for New England and will not sell out like they did with Cascade. I see Zaffire being the fit for Cisco, great platform that can extend metro to regional, great management story, etc....
birdieking 12/4/2012 | 8:49:25 PM
re: Redback and Juniper Talked, Balked ONI is going to go alone, in this market they will be asking for to much from Cisco.
luxPath 12/4/2012 | 8:49:27 PM
re: Redback and Juniper Talked, Balked ONI's products are all-optical...SCMR's are OEO, right? My profer of CSCO-ONIS considered only that CSCO may need a strong metro transport solution, as well as ONIS sophisticated sys mgt software.
luxPath 12/4/2012 | 8:49:27 PM
re: Redback and Juniper Talked, Balked ONI's products are all-optical...SCMR's are OEO, right? My profer of CSCO-ONIS considered only that CSCO may need a strong metro transport solution, as well as ONIS sophisticated sys mgt software.
kragon 12/4/2012 | 8:49:27 PM
re: Redback and Juniper Talked, Balked you've all got it wrong.
The market's gonna turn.. IPOs will flourish again.
And Tellium will buy Redback next winter. :)
lightreading 12/4/2012 | 8:49:28 PM
re: Redback and Juniper Talked, Balked word was ONIS turned down a $10B pre-IPO offer from CSCO. besides, why even look at ONIS for a metro DWDM box at $4B + premium when you can get SCMR for roughly the same and get LH DWDM, metro DWDM (supposedly), ULH DWDM, and an optical switch/cross-connect with more customers??
lightreading 12/4/2012 | 8:49:28 PM
re: Redback and Juniper Talked, Balked "Besides what's $800million (qeyton's acq. cost) for a King Cisco?"

actually, it's roughly 1/3 of that now.
ev21 12/4/2012 | 8:49:29 PM
re: Redback and Juniper Talked, Balked Redback is credited with making PVC management system. Given the weakness in DSL , is SMS still relavent.

Their other business/potential business with Siara product line probably is copy of Cerent/Cyras/Jasmine trio. Which one is out there with real product? Cerent , next Cyras and I would think Jasmine and RedBack(Siara) are still in the development stage.

The valuation for RedBack probably has not taken into account the erosion in DSL space in general.
luxPath 12/4/2012 | 8:49:29 PM
re: Redback and Juniper Talked, Balked That's the question for Mr. Chambers....CSCO makes news/noise in the Metro--just not in transport products.

Besides what's $800million (qeyton's acq. cost) for a King Cisco?
lightreading 12/4/2012 | 8:49:30 PM
re: Redback and Juniper Talked, Balked Qeyton ain't competin'. It's a wash for them.
Peter Heywood 12/4/2012 | 8:49:30 PM
re: Redback and Juniper Talked, Balked What's happened to Qeyton, then?
luxPath 12/4/2012 | 8:49:30 PM
re: Redback and Juniper Talked, Balked If Cisco needs a MetroDWDM solution, how about a purchase of ONI? ONIS has a robust optical Metro solution and has incorporated support for Storage Area Networks--an new focus area for Cisco.
Qeyton 12/4/2012 | 8:49:31 PM
re: Redback and Juniper Talked, Balked Did JNPR just flinch? I just finished reading the LR interview with Scott K. and got the impression that JNPR considers IP and transport miles apart..in comparison to cscso's ip+optical mantra.
Also, if RBAK and JNPR were a "hair" away from the the deal and Volpi said "we'll pay more" does that mean RBAK will not consider a csco offer or did something get mis-represented in the article?
One last question - did RBAK step away from this deal or did JNPR? Thanks
optinuts 12/4/2012 | 8:49:31 PM
re: Redback and Juniper Talked, Balked for all the reasons cited here, this article doesn't make much sense. can LR explain:

1) why the nonsense over cisco buying redback since cerent invented the space
2) why would juniper buy a sonet box (albeit with a little bit of data processing)
3) what about the interview with Scott Kriens? Everything about this is antithethical with his philosophy.

Before you get us all going again, pls tell us this was nonsense meant to keep people clicking on this website, nothing more.
adithyan 12/4/2012 | 8:49:33 PM
re: Redback and Juniper Talked, Balked I always thought Juniper was going to team
up with one of the metro edge companies like
Alidian, Zaffire, Mayan in the west coast or
even think of Astral point in the east coast

Why Redback ?
birdieking 12/4/2012 | 8:49:34 PM
re: Redback and Juniper Talked, Balked I agree with your logic, Cisco has the cerent product and has a tremendous amount of traction. My gut tells me that Cisco's next acquisition will be in the metro dwdm space. They currently do not have a credible product offering.

prefer_to_lurk 12/4/2012 | 8:49:34 PM
re: Redback and Juniper Talked, Balked
A Cisco buyout of Redback would certainly raise eyebrows, since they have nearly 100% product overlap. Would the SMS displace Cisco's similar offerings ? Would SmartEdge displace the 15454 ?

Doesn't make much sense to me, other than as a purely defensive move on Cisco's part.

prefer_to_lurk
red1969a 12/4/2012 | 8:49:35 PM
re: Redback and Juniper Talked, Balked I guess Junipers "growth through innovation not intergration" rule is changing! This would be what, aquisition 4 or 5?
I wonder what Juniper would offer and how high Cisco would go? $$$$$
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