Tellium: Up for Sale?

This week, optical switch maker Tellium Inc. (Nasdaq: TELM) announced the appointment of Marc B. Weisberg to its board of directors (see Qwester Joins Tellium Board). The addition of Weisberg, who has spent more than 25 years working on mergers and acquisitions, might be a sign that the company is shopping itself around.

“It definitely wouldn’t surprise me,” says Kevin Slocum, an analyst with Wit Soundview. “If I were in their position I think I’d be pretty worried.”

According the press release, Weisberg “most recently worked for Qwest Communications International Inc. (NYSE: Q) where he was executive vice president of corporate development responsible for merger and acquisition activities.” He also helped develop and implement Qwest’s European strategy by creating alliances with industry leaders and emerging companies in both the Internet and the telecom space, says the release, and he helped create and manage Qwest’s venture capital group.

The release also notes that before joining Qwest in 1997, Weisberg worked in investment banking for 11 years, dealing with clients in the telecommunications, entertainment, and media industries.

It’s not surprising that the company would be looking at options, including a deep-pocketed supporter. It's trying to ramp up sales of its optical switch product at a time when buying activity in core switching technologies has declined dramatically, with carriers axing their capital spending budgets. Tellium’s stock has fallen 90 percent to $2.92 since the day of its IPO in May 2001. And it lost roughly 53 percent of its value in 2001.

“Nobody is talking yet, but insiders want this thing sold,” says one fund manager watching the company, who didn’t want his name used.

With the sales cycles lengthening at many carriers, it's unclear when recovery in the industry will come, and Wall Street has been skeptical about Tellium's prospects at meeting its revenue forecasts. Some analysts also have concerns about the company's treatment of special charges in its last quarterly results (see Tellium Shares Sink After Earnings). Some of these relate to special stock warrants that Tellium has issued to its customers (see Qwest and Tellium Revise Contract). The company has also managed its burn rate by cutting research and development (see Tellium Stock Pops After Earnings).



So who would be interested in Tellium? The list of potential buyers is short. NEC Corp. (Nasdaq: NIPNY) comes to mind, because Tellium already has an interoperability agreement that allows its Aurora optical switch to work with NEC’s optical long-haul transport product. Two other possibilities are Siemens AG (NYSE: SI; Frankfurt: SIE) and Alcatel SA (NYSE: ALA; Paris: CGEP:PA), each of which has been rumored to be looking to acquire an optical switch maker.

It's not likely that any of Tellium's North American competitors -- Ciena Corp. (Nasdaq: CIEN), Lucent Technologies Inc. (NYSE: LU), Nortel Networks Corp. (NYSE/Toronto: NT), and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) -- would be interested in the company, because they already have similar products.

At Tellium, the decision at the top level may be quite clear: Try to work out a deal with an acquirer that will appease shareholders in the short term, or figure out ways to preserve cash and wait out the long, hard telecom winter.

Tellium declined to comment on this story.

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com