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Optical/IP

Tellabs Angling for Access – and AFC

No, it’s not your imagination, the deal-making is heating up. And the latest word from our best sources on Wall Street is that Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) has been angling for an acquisition of a big access player -- specifically, Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI).

One trusted source says he’s even heard about a term sheet being drawn up. He said Tellabs was ready to pull the trigger when AFC’s own deal for Marconi Corp. plc's (Nasdaq: MRCIY; London: MONI) access division got in the way, two weeks ago (see Access Acquisition Boosts AFC). That put the deal on hold. Yesterday's announcement of the resignation of North American president Ed Kennedy probably has not helped move things along (see No Naperville for Kennedy).

Another stumbling block could be the price. AFC shares have risen 25 percent in just the last month. Today, AFC rose $0.99 (4.18%) to $24.58.

Will it still happen? One source thinks it just might. And other sources, including Tellabs executives themselves, have confirmed that Tellabs would like to add another big product line -- especially something hot like access.

Tellabs would like to diversify from its core business, which includes mostly Sonet/SDH gear and some newer packet-switching products that it is developing via its aquisition of Vivace Networks (see Tellabs Unveils Vivace Sibling and Tellabs Snags Vivace for $135M). Buying an established access company with blue-chip telecom customers would suit Tellabs well -- and AFC, which is one of the leading access players in North America along with Alcatel SA (NYSE: ALA; Paris: CGEP:PA), fits the bill.

Tellabs chairman and CEO Michael Birck told Light Reading today that the company has been looking at options, though he wouldn't comment on whether a specific acquistion was in the works.

”We have a group that’s been looking [for another product group]. We have not limited the search to one area, including access, but we have noticed there’s a lot of money flowing there," said Birck.

Wow. What about AFC?

”Yes, we know them,” said Birck. “And we probably couldn’t acquire Alcatel. But there are others."

So, if Tellabs did pull the trigger, what would be the price? Our source says AFC would likely want a decent premium -- though as mentioned earlier it’s been getting steadily higher every day, and that may cause a problem. AFC currently has a market capitalization of $2.12 billion. Yes, that’s billion. Sounds like the old days, don't it?

An AFC spokesman said the company had no comment on this story. But he did mention that he would not want to move to Naperville, Illinois.

— R. Scott Raynovich, US Editor, Light Reading

technonerd 12/5/2012 | 2:40:30 AM
re: Tellabs Angling for Access – and AFC I thought AFC was very copper/ADSL oriented. While a current stop-gap measure, does this technology really have legs? For long term growth, should TLAB not look to wireless access to consumers, or fiber access to business?
There's good news and there's bad news. The good news is that AFC makes a Next-Generation Digital Loop Carrier. The bad news is that it's more than 10 years old.
materialgirl 12/5/2012 | 2:40:30 AM
re: Tellabs Angling for Access – and AFC I thought AFC was very copper/ADSL oriented. While a current stop-gap measure, does this technology really have legs? For long term growth, should TLAB not look to wireless access to consumers, or fiber access to business?
douggreen 12/5/2012 | 2:40:28 AM
re: Tellabs Angling for Access – and AFC Yes, copper products are a stop-gap measure good only for the next 5-10 years, perhaps 15-20 tops.

Even if one assumes some pretty agressive rollouts of fiber to the home, copper will still dominate on a percentage basis. A good strategy needs to account for both copper and fiber.
sevenbrooks 12/5/2012 | 2:40:23 AM
re: Tellabs Angling for Access – and AFC
I guess you were all sleeping through AFC's win of the Verizon FTTP business.

seven
telcovllysldier 12/5/2012 | 2:40:22 AM
re: Tellabs Angling for Access – and AFC "I guess you were all sleeping through AFC's win of the Verizon FTTP business." (Well said sevenbrooks!)

Additionally, don't you think it behooves AFC to stand on their own 2 feet especially given their recent acquisition? That move gives them a solid foot-in-the-door with the RBOCs on the way to FTTP dominance. It also doesn't appear that AFC has been hurting for ca$h in recent years.
optical 12/5/2012 | 2:40:16 AM
re: Tellabs Angling for Access – and AFC Maybe the price that AFC demands is too rich for the conserative Tellabs folks??? I personally think it would be a good move fro TLABS.
truelight 12/5/2012 | 2:40:08 AM
re: Tellabs Angling for Access – and AFC Both companies would match each others strengths nad weaknesses.

They both have a lot of failures when it comes to acquiring other parties.

Tellabs folks cannot handle new products and AFC cannot make new products.

They both have good market presence with little innovation.

Sounds like a match in heavan

photon_mon 12/5/2012 | 2:39:19 AM
re: Tellabs Angling for Access – and AFC "Both companies would match each others strengths and weaknesses.

They both have a lot of failures when it comes to acquiring other parties.

Tellabs folks cannot handle new products and AFC cannot make new products.

They both have good market presence with little innovation.

Sounds like a match in heaven"

-----------------------------

Well said, truelight!

It doesn't seem to make a whole lot of sense and therefore is likely the perfect play. Perhaps Tellabs is nostalgic for its own past.
lightstalk 12/5/2012 | 2:30:11 AM
re: Tellabs Angling for Access – and AFC The Tellabs AFC relationship goes back to pre-boom days. One of Tellabs' product lines had (has!) a base from one of AFC's product lines (it was named different earlier)

Interesting to see how things proceed because in the middle there was supposedly some acrimony regarding sharing of info which led to parting of ways (at least from the engineering point of view).

-lightstalk
PackMan 12/5/2012 | 2:29:58 AM
re: Tellabs Angling for Access – and AFC No way could Tellabs buy AFC now. They don't have nearly enough $$$ in the bank, and wouldn't want to go deep into debt since they're not currently profitable. Merger maybe, but buyout no. Not sure who brought up this rumor, probably something to try to pump up AFC's stock price, which it did for 1 day. Hope they sold at the right time.
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