Tekelec Still Seeking Switch Suitors

Five weeks into its switching suitor search, Tekelec says its options are as open as ever

December 13, 2006

2 Min Read
Tekelec Still Seeking Switch Suitors

Tekelec began looking six weeks ago for somebody to buy its underperforming switching business, but so far no suitor has emerged. (See Sources: Tekelec to Sell Switching Business.)Sources told Light Reading that Tekelec was close to selling its the business to Ericsson AB (Nasdaq: ERIC) in early November, but no such deal ever came to fruition.

Tekelec did set the table for a sale by taking a $100 million impairment charge on the switching unit in its third-quarter numbers, effectively writing the business off. (See Tekelec Reports Q3.) Then the company said it had enlisted the help of JPMorgan Partners to help it find a decent exit from the business.

Tekelec said that selling the switching business was just one of several options it was looking at. Tekelec investor relations manager Jim Chiafery told Light Reading this week that his company may form a switching joint venture with another company or even continue operating the business as before. He adds that he doesn't know if JP Morgan is holding discussions with potential acquirers.

"Obviously, people are not lining up to buy it," says Piper Jaffray & Co. analyst Troy Jensen. Jensen estimates the Tekelec switching business to be worth somewhere between $50 and $80 million. "I struggle to think of anybody that will pay toward the top end of that," he says.

"I think the most obvious buyer would be Alcatel, given that they are the vast majority of the business that unit does," says Brean Murray & Co. Inc. analyst Eric Buck. Alcatel sells Tekelec's Santera media gateway as part of its Spatial Wireless switching solution. Of the $30.7 million in switching revenue Tekelec reported for the second quarter of this year, $19.4 million came from sales through Alcatel.

Several analysts have said that the Tekelec switching business might be sold piece by piece. "The wireless media gateway isn't going to have nearly so much relevance to somebody selling VOIP to Tier 2 telcos here in the U.S.," explains Susquehanna Financial Group analyst Joe Chiasson.

Tekelec got into the switching business with the acquisitions of Taqua, Santera, and VocalData in 2003 and 2004. (See Tekelec Is Buying Taqua, Santera, Tekelec Fuse Switching Units, and Tekelec Connects With VocalData.) Soon it found itself neck-deep in a crowded pool.

Chiasson identifies at least 12 other VOIP softswitch companies that compete with Tekelec's hardware businesses in some way. "So there is arguably a bit of an oversupply condition there," he says.

— Mark Sullivan, Reporter, Light Reading

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