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Routing

Redback Boosted by TCV, Verizon Talk

Shares of edge-routing and subscriber management system vendor Redback Networks Inc. (Nasdaq: RBAK) are on the run again today, boosted by a further investment by one of its large shareholders, Technology Crossover Ventures, as well as some talk about a potential new deal with an RBOC.

Redback's stock was up $0.92 to $11.92 in midday trading today.

TCV, already a major shareholder in Redback, reported yesterday in an SEC filing that it has acquired 1,072,500 more shares at $11 apiece. The filing says the transactions came through in chunks, on Nov. 1-3. TCV partner John Drew, listed in the filing, is on Redback's board of directors.

The news is intriguing, given that TCV was a major player in Redback's 2003 Chapter 11 restructuring, investing $30 million for a large stake in the firm after its restructuring (see Redback's Ready to Rise Again and Redback Sees End to Red Ink).

TCV already appears to have made out nicely on the restructuring transaction -- which gave it an 11 percent stake in Redback's equity, now worth about $72 million at today's market capitalization. The fact that it's now "doubling down" on its investment is taken by some to be an especially positive sign.

"A large insider buying more stock like that is a loud and clear 'Buy' signal," says Herb Chen, principal at Chen Capital. "That's as loud and clear a message as you get in the stock market." Chen disloses that he's an owner of Redback shares.

Adding to the intrigue are rumblings from several sources that Redback's products are being considered at an RBOC -- possibly (NYSE: VZ), according to one source. Verizon has already announced (Nasdaq: CSCO) and (Nasdaq: JNPR) as router and subscriber-management system vendors, but the source says Redback products are being considered by the carrier for certain edge routing and B-RAS applications.

Verizon did not immediately return a call for comment.

So why would Verizon be considering yet another router and subscriber-management vendor? One theory says the carrier is unhappy with Juniper's E320, a recently introduced high-density router targeted at IPTV, and wants to enlist a backup supplier.

"I think they're looking for another vendor right now," says financial analyst Sanjiv Wadhwani of Miller Johnson Steichen Kinnard Inc. "Features that were delivered on the product didn't meet all the requirements that Verizon had."

A Juniper spokeswoman said the company doesn't comment on rumors; in fact, the company wouldn't confirm whether Verizon even uses the E320. The spokeswoman noted that Verizon has been a customer of other E-series routers since the signing of a "multiyear master purchase agreement" in 2003. (See Juniper Goes Public With Verizon.)

Redback has been playing up the video capabilities on its SmartEdge routing platform and SmartEdge Services Gateway B-RAS product, which some analysts say give it an edge. Redback's contract win at (NYSE: BLS) appears to confirm that it has a shot at winning big accounts against larger competitors such as Juniper. (See How Redback Won BellSouth.)

— R. Scott Raynovich, US Editor, Light Reading

— Craig Matsumoto, Senior Editor, Light Reading, contributed to this story.

tmc1 12/5/2012 | 2:55:02 AM
re: Redback Boosted by TCV, Verizon Talk "A large insider buying more stock like that is a loud and clear 'Buy' signal," says Herb Chen, principal at Chen Capital. "That's as loud and clear a message as you get in the stock market." Chen disloses that he's an owner of Redback shares.
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Now THAT'S neutral and un-biased advice!

Yet another Wall Street stock whore shows his colors.
whyiswhy 12/5/2012 | 2:55:01 AM
re: Redback Boosted by TCV, Verizon Talk That's virginity challenged to you, buddy!

-Why
gotojailjoel 12/5/2012 | 2:55:00 AM
re: Redback Boosted by TCV, Verizon Talk who writes this crap? Anyone with a clue (or at least an attempt to research the story) would know that VZ has been a RBAK customer for about 7 years. Even rbaks's senior management's incompetence couldnt change that.
OSXman 12/5/2012 | 2:54:56 AM
re: Redback Boosted by TCV, Verizon Talk So how exactly would you interpret the open market purchase of 1mm shares of RBAK at the year's high by a financially savvy insider?
optiplayer 12/5/2012 | 2:54:54 AM
re: Redback Boosted by TCV, Verizon Talk Clearly, it is a positive signal when an astute investor adds to an already winning position.

That said, LR should have looked for an analyst who doesn't own a piece of RBAK to comment of the significance of the purchase as Mr Chen clearly has an interest in RBAK's shares going up! I believe that was TMC's point.
tmc1 12/5/2012 | 2:54:53 AM
re: Redback Boosted by TCV, Verizon Talk Clearly, it is a positive signal when an astute investor adds to an already winning position.

That said, LR should have looked for an analyst who doesn't own a piece of RBAK to comment of the significance of the purchase as Mr Chen clearly has an interest in RBAK's shares going up! I believe that was TMC's point.
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It could also mean other things such as an investor that want's more control, it could also be an attempt to try to influence a relatively small and lightly traded stock in favor of their holdings - since they got cheap stock in the restructuring their average cost is better than someone buying now. It could be a number of different, complicated things. Wall Street (like Vegas) tries to play a game with odds heavily in their favor so listening to someone with skin in the game is meaningless. All of Mr. Chen's interest is involved in the stock going up so...
OSXman 12/5/2012 | 2:54:51 AM
re: Redback Boosted by TCV, Verizon Talk There are few truly neutral and unbiased sources of information. Those who have skin in the game have typically done a greater level of homework than those who don't have any skin in the game. Yes, Chen is talking his book, but so is pretty much anyone in the investment game. Personally, I am most suspicious of those who have no skin in the game. If they like a stock so much, how come they don't own it?

Indeed, TCV's purchase could relate to any of a number of reasons, but the simplest and most likely reason is that they probably think the stock is attractive at this price.
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