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
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opticalnutjob 12/4/2012 | 10:56:32 PM
re: Tellium: Up for Sale? Your right. I heard Tellium is hunting around for an optical switch that carriers will actually want to buy.
watchtower 12/4/2012 | 10:56:32 PM
re: Tellium: Up for Sale? Couldn't the presence of an M&A expert mean that Tellium is setting up a long term acquisition strategy?
opticalnutjob 12/4/2012 | 10:56:31 PM
re: Tellium: Up for Sale? Your right. I'll tri to seam more intelligent next time.
sntwk 12/4/2012 | 10:56:31 PM
re: Tellium: Up for Sale? "Your right. I heard Tellium is hunting around for an optical switch that carriers will actually want to buy."

What is that carriers actually want to buy?

Any bright startups out there on the short list of telium?
lr_fan 12/4/2012 | 10:56:31 PM
re: Tellium: Up for Sale? Why did you begin by saying his right? Or, did you mean "You're right?"
If you're going to be glib, try to seem intelligent!
opticalwatcher 12/4/2012 | 10:56:30 PM
re: Tellium: Up for Sale? I would assume that they will be sold before they start buying. My reasons for this thinking are as follows:
1) a very focused company that have claimed no interest in expanding their product line,
2) have a "best in breed" attitude, which is contrary to the aquisition mode of growth,
3) they have no money or stock power to start making purchases, and, even more important, they dont have the money (i.e., time) to spend integrating another product into their line,
4) and finally, and I realize that this will draw fire, but Harry has been around the block a long time. He knows the game, and the game is almost up for tellium. They need to become aquired in order for them to protect whatever they can for their big pockets. As a company with only one product, they can not survive in this climate. And this climate is going to last at least 3-5 yrs (JMHO). At current spending revs, they wont last by themselves.

Good luck all!
allidia 12/4/2012 | 10:56:29 PM
re: Tellium: Up for Sale? Don't forget the M in M&A. Tellium/ONI merger???
gea 12/4/2012 | 10:56:27 PM
re: Tellium: Up for Sale? I thought Tellabs cancelled their "competitive" product. If this is the case, Tellium would be a fairly ideal acquisition for Tellabs.
opticalwatcher 12/4/2012 | 10:56:27 PM
re: Tellium: Up for Sale? Just a thought, but from a business perspective, why buy tellium now?
First, tellium has customers and money coming in the door. There's a good chance that fact will change over the next six months or so. Everyone has heard about C&W, Qwest cuts, dynegy slowing down.
Second, the demand for core routing has dropped off the face of the planet (well, you know what I mean),
Third, any potential buyers could probably pick up tellium in a fire sale over the next 2-3 yrs.

From telm perspective, if they're selling now, they know they're in trouble. And how much could they really expect to get in a sale? How much is to much in an environment like this?
flanker 12/4/2012 | 10:56:26 PM
re: Tellium: Up for Sale? Virtually every single product equipment manufacturer is looking for a white knight. I read about this guy going to Tellium a few days ago and the last thing I concluded was that "This is going to help Tellium sell the company".

There are a lot more efficient ways to put tellium up for sale than to bring in a guy who knows carrier services, not telco equipment.

Tellium could have simply hired Goldman or Chase under confidentiality to find a short list of strategic partners. There is no law requiring Tellium to disclose hiring an I-banker for "strategic advice".

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