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Tektronix Acquires Inet for $325M

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News Analysis
Light Reading
6/30/2004

Test vendor Tektronix Inc. (NYSE: TEK) will double the size of its telecom test business and expand its portfolio significantly with its proposed acquisition of Inet Technologies Inc. (Nasdaq: INET) for $325 million (see Tektronix Acquires Inet).

Tektronix will use about $250 million in stock and $75 million in cash to acquire the network monitoring specialist, which has about 500 on staff, and which posted annual revenues of $104 million and a net profit of $11.7 million in 2003.

Tektronix says the acquisition, due to close on September 30, will generate revenues of more than $200 million for its mobile technology test tools and network monitoring products.

Tektronix has a broad portfolio of test and measurement products that span the IT and semiconductor sectors. Its total revenues for fiscal 2004 (ended May 29) were $920.6 million, while net income was $118.2 million.

The news, which was released after the markets closed on Tuesday, sent Tektronix's share price down $1.11, just more than 3 percent, to $33.83 from yesterday's closing price of $34.94. Inet's stock shot up by $1.79, or nearly 17 percent, to $12.49.

So what's behind Tektronix's move? CEO Richard Wills told a conference call that the deal will strengthen its products for its core customer base in the mobile network sector, give it some key VOIP testing tools and experience, boost its opportunities with mobile operators, and help it break into the fixed carrier sector.

At present, the vast majority of Tektronix's business comes from selling protocol test equipment to wireless network equipment companies (GSM but not CDMA) and to some mobile carriers testing equipment in their labs. Its small network monitoring division accounts for just 10 percent of its telecom business. This merger is seen as a move into more diversity.

Inet is positioned in a different market -- mostly with wireline carriers. The vast majority of its sales are to major carriers, such as AT&T Corp. (NYSE: T), BT Group plc (NYSE: BTY; London: BTA), MCI (Nasdaq: WCOEQ, MCWEQ), and Vodafone Group plc (NYSE: VOD), for its network performance software.

"We are strong with our equipment test and simulation products, while Inet's strength is in network monitoring software. Now we'll cover the whole food chain, from new technologies being developed [by vendors] to the networks and services deployed by operators using those new technologies. There are a lot of synergies," says Wills.

Wills says Tektronix has had opportunities to sell network monitoring products to mobile carriers, particularly in Asia/Pacific, but "we couldn't take advantage of those opportunities. We didn't have the critical mass, but now we'll have that." The CEO says the deal will also give Tektronix a wireline carrier business, "where we've had very little business," and an IP convergence story with Inet's VOIP testing tools (see Test Vendors Target VOIP, IPV6 and Inet Integrates Telchemy VOIP Tester).

Wills says merging the two companies will boost its addressable market to $705 million -- $370 million from the diagnostics market and $335 million from network monitoring.

Both companies cited Agilent Technologies Inc. (NYSE: A) as their main competitor during the conference call. Agilent declined to comment on the acquisition.

— Ray Le Maistre, International Editor, Boardwatch

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optiplayer
optiplayer
12/5/2012 | 1:29:19 AM
re: Tektronix Acquires Inet for $325M
According to Yahoo Finance the market cap of INET is $489M so why is this deal billed as $325M?
MrRubbery
MrRubbery
12/5/2012 | 1:29:15 AM
re: Tektronix Acquires Inet for $325M
The value of the deal is net of cash. INET had $172M in cash as of end of March 04.

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