Tellium Switches IPO Bankers

Tellium Inc. has replaced Goldman Sachs & Co. (NYSE: GS) with Morgan Stanley Dean Witter as the lead underwriter for its IPO, several sources close to Tellium say. Tellium filed for its IPO in September 2000, and the offering is expected to raise $262.5 million for the optical switch maker.

It’s hard to say what Goldman Sachs’s role in the IPO will be at this time. One source tells Light Reading that it’s doubtful that the name will be on the prospectus cover at all. Morgan Stanley was not part of the Tellium deal until now, whereas Goldman had been listed as the lead underwriter since Tellium's first SEC filing.

Sources say Tellium’s banker change primarily revolves around Goldman Sachs's longstanding relationship with Tellium’s archrival, Ciena Corp. (Nasdaq: CIEN).

When Ciena went public in February 1997, its Goldman-led offering raised $115 million, and the company achieved the largest valuation ($3.4 billion) of any early-stage, venture-backed IPO in history. More recently, Goldman Sachs and Morgan Stanley both aided Ciena in a $1.52 billion secondary offering of 11 million shares and $600 million in bonds (see Ciena Taps Market for $1.5B).

Tellium officials may have become leery of the prospect of having Goldman try to sell their deal to institutional investors months after the bank told the same investors to buy Ciena's secondary offering.

Regarding Tellium’s readiness to go public, the company is said to be waiting for more favorable market conditions (see Optical IPOs Hang at the Gate). Since its founding in 1997, Accel Partners, Oak Investment Partners, Blue Rock Ventures, Cisco Systems Inc. (Nasdaq: CSCO), Pequot Capital Management Inc., and seven other investors have pumped some $96 million into Tellium. Also, late last year, Thomas Weisel Partners helped the company complete a $212 million private placement.

Tellium’s fundraising has risen in proportion to its staff growth and financial losses. Between its founding and Sept. 30, 2000, Tellium had lost about $99.9 million, according to its Dec. 7, 2000, filings with the Securities and Exchange Commission.

Also in that filing, Tellium disclosed that its headcount grew from 98 to 308 employees between Sept. 1999 and Sept. 2000. The current headcount is in the ballpark of 444, a company spokesman confirmed, meaning its burn rate has increased.

Adding grist to that mill is the unconfirmed rumor that the SEC has raised the issue of stock warrants issued to Tellium customers. Such issues may have been raised in the regular correspondence with the SEC during the filing period. As policy, the SEC does not respond to questions about such correspondence, except through Freedom of Information Act (FOIA) requests, which Light Reading has filed (The SEC takes 10 weeks or more to respond to such requests).

According to its most recent SEC filing, Tellium has three customers: Qwest Communications International Corp. (NYSE: Q), Dynegy Inc. (NYSE: DYN), and Cable and Wireless (NYSE: CWP). Two of those firms, Qwest and Dynegy, are Tellium shareholders.

In Dynegy’s case, some of its Tellium shares vest more quickly depending on how much Tellium gear it’s buying at a given time. In Qwest’s case, not only did Qwest get warrants for agreeing to buy Tellium’s gear, but Tellium has also issued nearly $10 million worth of stock options to seven unnamed Qwest officers, which can be exercised 90 days after shares begin selling on the public market (see All Eyes on Tellium IPO).

Representatives for Morgan Stanley and Goldman Sachs did not return calls for comment for this report. Tellium representatives would not comment on its bankers and said that its upcoming S-1 filing would address any changes the company may have made.

-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com
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big_cecil 12/4/2012 | 8:50:07 PM
re: Tellium Switches IPO Bankers You sound like somebody who is tired of working 24/7 waiting for the big payoff. Face it, you should have stayed at Lucent, at least you wouldn't have had to work for a living.

pablo 12/4/2012 | 8:50:06 PM
re: Tellium Switches IPO Bankers I wonder why those who are so loud with their criticism of the LightReading-Method keep on reading and reading and posting and posting.

It is my very own decision to follow different publications for different reasons. And if one publications consistently disappoints me in my expectations, I simply don't read, them, problem solved. I don't tell them to change their ways, because they obviously do effectively cater to some audience out there.

In the case of LightReading, it is a good, sometimes enjoyable, sometimes opinionated, but always spot-on-time pulse reading of our industry. They report on what's hot, period, and rarely miss anything great. Like with *ny* publication your read anywhere, if it's something important to you you better due your very own due diligence and establish if you think the news is accurate or not. Journalism is by its very nature not always an exact science. If Journalists made sure each and every one of the things they write is entirely exact and 100% accurate, they'd never get anything out in time. *We* want to hear stuff quickly, and journalists provide the news faster than we could, and due as much due diligence as they possibly can, and leave the rest to us.

I do not expect Light reading to be the friggin' IEEE Transactions on Communications or something like that. I do scan it simply to hear rumors, to listen to some opinions, simply to see "what is going on".

And let's face it - *everybody* comes flogging to LR because it has brought something new to the table. Is it sensationalist at times? Hell yes. Is it biased? Sometimes. Is it an entertaining way of learning about what is going on out there? Yeah, of course. That is why it's successful.

I for one do think the LR team has brought some very cool stuff to the table. And I do say despite the fact that my company has not escaped their somewhat harsh question and judgement...
DCITDave 12/4/2012 | 8:50:06 PM
re: Tellium Switches IPO Bankers Since I wrote the Tellium story I can tell you that the sources quoted were close enough to the company and its bankers that the mention of their names, or even their job titles, would likely cost them their jobs.

I had three sources on this story and each person had direct knowledge of the events reported. Also, each person had no idea who else I was talking to during the reporting process.

I talked to each person, took notes, and compared their stories. When I used information that came from one source, as opposed to all three, I labeled the single-sourced information as such in my story.

I don't agree that my article was destructive to anyone. It simply pointed out an interesting bit of financial politics and alerted readers of some information that will soon be available in Tellium's public filings.

I do, however, understand your concerns about the use of anonymous sources in our reporting. It is something we should weigh carefully. We should grant anonymity only when necessary and not when it's clear that someone is trying to use our coverage to serve their interests.

Please know that, as an organization, Light Reading does strive for accuracy in our reporting. The writing is lively, but weGÇÖre not going to apologize for that.

Our stories, after all, are labeled "news analysis," not "news." There is a difference. Fairness and balance are essential when gathering facts, but to use the old "he said/she said" formula when writing our stories would be a shame. It is, in fact, a copout.

Any wire service or newspaper can report the news. We try to give you a sense of what the news means and why people are (or should be) passionate about it. That's why even the people who hate us can't help but read us each day. Some of them even post to our message boards several times an hour.

So I wouldn't label what we're doing as poor journalism. I'd call it "new journalism" because I don't think anyone's ever covered the optical/telecom business quite like this before. And, as with all things new, we are still working out some kinks. That's life.

I hope you have a better sense about why we do what we do. What happens next is your call. If the articles we're writing are valuable, I'm sure you'll keep reading them, even when you don't agree with our analysis.

If they're not, go read something else or get some fresh air. Like every other industry, the competition in the publishing world is tough and we won't survive if we don't put out something worth reading.

Indeed, where you get your news is up to you. For our part, if we can't hold your attention, then we don't deserve it.

Phil Harvey, senior editor, Light Reading, 817-922-8689
biatcher 12/4/2012 | 8:50:06 PM
re: Tellium Switches IPO Bankers Journalism? Hmmmm....what about credibility? What about the amount of times people point out what you get wrong? What about the consensus out there that you folks have traded objectivity for sensationalism or professional standards for an extended 15 minutes of fame?

Stay out of the analysis game...you folks are not that good at it. You have no backgrounds in it and your opinions are reasonably flawed. You cannot sit and tell us that you provide us with accuracy when you traffic in rumor, hearsay and anonymity to the extent that you do.

Your competition thinks you guys are an embarrassment to the industry and that should say something when they cannot even acknowledge what they respect about you...you are hypocrites for believing your own shameless self-promotion about your objectivity and your grasp of the market. Should you be proud of what you have created here? A place where people go to learn about gossip or level insults at one another or at your company itself?

What's the price of fame and attention?
Humbert 12/4/2012 | 8:50:04 PM
re: Tellium Switches IPO Bankers
It basicly comes down to some people having a vested interest in the success of Tellium's IPO barking at anything that could potentially depress the stock price. I would expect a greater capacity of critical thinking from people building the next generation internet. I guess simpletons occupy all walks of life.

What bothers me though is that the more I read the more this whole optical/IP equipement thing seems like some big secret racket. Options are used to leverage relationships all around. Once everyone has stock or options, we'll all have a vested interest in keeping up the illusion. Who knows, maybe they'll even start distributing them to journalists, and Lightreading will become the "Entertainment Tonight" of the telecom world. I just hope I can get my payoff before all of this implodes.
pablo 12/4/2012 | 8:50:02 PM
re: Tellium Switches IPO Bankers ".. maybe they'll even start distributing them
[share options] to journalists .."

Don't you think that has already happened? Journalists aka analysts are on technical advisory boards all over the place already. F&F programs. Whatever. It is already wide-spread.

Which doesn't mean everybody sells out their professional objectivity and simply think their job is to hype a company. People that have build a career-path usually are afraid to sell out their credibility over night. People can have share options and still try to do a balanced job. Conflict of interest? That has been around all the time. Nothing prevented people from buying Cisco stock on their own. Probably every Light Reading editor owns some. They *still* don't see it as their only mission to talk up Cisco stock, evidently...
Peter Heywood 12/4/2012 | 8:50:01 PM
re: Tellium Switches IPO Bankers We are preparing an ethical policy statement that we'll be publishing shortly, but I can tell you that none of the full time editorial staff of Light Reading have any financial interest in the companies they write about.
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