Tekelec Switching Faces Gallows
Jefferies & Co. Inc. analyst George Notter downgraded the company's stock to Hold from Buy in a note published this morning, saying the shutdown of the Tekelec switching business is now "a real possibility."
It's not a pretty scenario. Tekelec, which had hoped to get $25 million for the business, instead could end up paying $25 million in shutdown costs, Notter writes.
"Our downgrade is motivated by valuation and our view that it is increasingly unlikely the company will get a positive outcome on the sale of the switching division," Notter writes in the note.
Tekelec shares were off 91 cents (5.6%) at $15.31 in midday trading on the Nasdaq. (See Tekelec Reports Q3.)
In November, Tekelec was reportedly close to selling the switching business to Ericsson AB (Nasdaq: ERIC). That deal didn't materialize, and in December, Tekelec announced it had retained JPMorgan Partners to help it "look for strategic alternatives" for the business. (See Sources: Tekelec to Sell Switching Business and Tekelec Still Seeking Switch Suitors.)
Notter says in his note that Alcatel-Lucent (NYSE: ALU) appeared to be a logical acquirer for the switching business. Alcatel sells Tekelec's Santera media gateway as part of its Spatial Wireless switching solution. Notter now believes there is "no chance" of Alcatel-Lucent buying the division.
Tekelec wouldn't comment on Notter's report, although a spokesman says Tekelec will provide an update on the switching business situation at the company's next earnings call. The date for that call has not yet been set.
Tekelec got into the switching business with the acquisitions of Taqua, Santera, and VocalData in 2003 and 2004. (See Tekelec Is Buying Taqua, Santera, Tekelec Fuse Switching Units, and Tekelec Connects With VocalData.)
— Mark Sullivan, Reporter, Light Reading