Redback's Ready to Rise Again

Redback Networks Inc. (Nasdaq: RBAK) appears to be on the cusp of some fund raising and maybe, just maybe, more M&A talks, Light Reading has learned. Fund Raising
Employees at Redback say the company's senior management has recently said that the company has received several term sheets through selling equity in the "New Redback."

And what's the New Redback? It's the Redback that expects to get confirmation of its bankruptcy plan on Friday at a scheduled court hearing in Phoenix. Once a judge confirms Redback's plan, the company expects to emerge from bankruptcy shortly thereafter.

On November 12, Redback obtained a debtor-in-possession revolving credit line from Abelco Finance LLC, for up to $25 million. But the company still needs some funding to run its business once the bankruptcy period is over.

For more on Redback's bankruptcy, see:

Meritech Capital Partners, a late-stage venture capital firm partly funded by Accel, an original Redback backer, is one of the companies interested in funding Redback, one source close to Redback says. Calls to Meritech were not returned on Wednesday afternoon.

M&A Rumors
Redback has talked to ECI Telecom Ltd. (Nasdaq/NM: ECIL) about the possibility of a merger, according to one source close to the situation.

Redback hasn't responded to a request for comment, and neither has ECI, officially. But a source close to ECI, while not commenting on the rumor itself, did wistfully muse that Redback's access market share is enviable and that there is very little overlap between the two companies' product lines.

In the metro network, Redback has an edge router and ECI has a line of crossconnects, and a line of Sonet/SDH transport products, as well as a competitive multiservice provisioning platform.

Table 1: Next Gen Sonet/SDH Scorecard
Vendor Access CLE MSPP MSTP MSSP Core STS1/VC4 Switch Product Breadth (1-5)
ECI Telecom Broadgate �LAN, �SAN XDM 400, XDM 500 XDM 1000 T::DAX n/a 4
Source: Heavy Reading
  • CLE = customer located equipment
  • MSPP = multiservice provisioning platform
  • MSTP = multiservice transport platform
  • MSSP = multiservice switching platform

  • In the access network, Redback has subscriber management platforms and B-RAS products that ECI lacks. In fact, with its SMS 10000 and SmartEdge 800 products together, Redback Networks has probably shipped more B-RAS systems than any other vendor, even though it rarely gets credit for being as ahead of the curve in that area.

    Table 2: B-RAS Market Perception Results
    Vendor Recognition Price Performance Quality and Reliability Service and Support
    (number of responses) 85 52 58 56 53
    Redback Networks Inc. 43.50% 13.50% 8.60% 7.10% 7.50%
    Source: Heavy Reading's 2003 Telecom Equipment Market Perception Study.
  • Column 2 shows percentage of respondents that recognize Redback as a B-RAS supplier.
  • Subsequent columns show percentage of respondents that consider Redback a market leader in terms of price, performance etc.

  • ECI has a line of central office and remote DSLAMs, as well as voice gateways and other bits of access network gear that Redback's gear often has to sit next to inside telecom networks.

    ECI brought in $646.2 million in revenues last year and carries a market cap of $645 million. Redback's 2002 revenues were $126 million and its market cap is about $53 million.

    Redback sources say management hasn't spoken of any talks with ECI or other merger possibilities. So far, Light Reading hasn't been able to confirm the talks with any other sources.

    This wouldn't be the first time Redback has put itself up for sale. Nearly three years ago, the company was in talks to merge with Juniper Networks Inc. (Nasdaq: JNPR), but both eventually walked away (see Redback and Juniper Talked, Balked).

    — Phil Harvey, Senior Editor, Light Reading

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    reoptic 12/4/2012 | 11:10:01 PM
    re: Redback's Ready to Rise Again to procket? talk about out of the frying pan and into the fire? jumping from revenue to virtually no revenue, from edge/broadband to core, from a wide customer base to no customer base...someone crazy enough to make that jump is probably not someone they want to keep
    5urf5hop 12/4/2012 | 11:10:01 PM
    re: Redback's Ready to Rise Again out while there's still time. Go to Juniper or Procket ...
    lightreceding 12/4/2012 | 11:10:00 PM
    re: Redback's Ready to Rise Again actually a lot of Redback engineers have already jumped to Procket. Although Procket lacks in the way of customers and revenue they do have a low burn rate, a large cash fund and a better product focus and a more advanced product. They are moving to the edge with new versions of their products and they are not burdened by trying to manage two diverse product lines (sms / smartedge) that came from two competing organizations. Redback is in bankruptcy after all and being mismanaged by Kevin the dunce, a Cisco castaway and Joel the scammer, who is under investigation by the federal government. It is becoming more apparent that Redback won't survive bankruptcy in the current form. I think we can count on Kevin and Joel planning a quick exit after they make the company look more saleable. Just think of them as the FAO Swartz of High Tech.
    rebopper 12/4/2012 | 11:10:00 PM
    re: Redback's Ready to Rise Again What happened to Ron Sege? Anyone know what's going on there?
    Iipoed 12/4/2012 | 11:09:59 PM
    re: Redback's Ready to Rise Again Keep in mind Redback had a fairly successful IPO. Early employees made millions. The post IPO employees see that some people's dreams came true. Not to say that Procket or any other company will come close to the IPOs of Foundry, Juniper and Redback but at least with Procket the possibility is there to some extent. Lets face it options at 1.00 that someday might be worth 10.00 or more is at least something to hope for. With Redback they are only working for a paycheck.
    lightshow 12/4/2012 | 11:09:57 PM
    re: Redback's Ready to Rise Again Rumor has it that ECI is also looking to aquire almost bankrupt Innovance. Most of the Innovance employees are laid off now, with the exception of the Execs. Talks were today.....wondering what the outcome is??

    Given that Alcatel did not find the ROI was good enough, I wonder what the ECI guys are thinking.
    Ringed? 12/4/2012 | 11:09:55 PM
    re: Redback's Ready to Rise Again Unless you have to do a large reverse split prior to a IPO.. Then you might have enough cash to pay off some personal debt or blow it on a down payment for an H2 :)

    reoptic 12/4/2012 | 11:09:54 PM
    re: Redback's Ready to Rise Again Better product focus at Procket...because they are doing edge and core now? Like penetrating one of those is easy so it is more focused to do two when you have no customers?
    Their burn rate is down...because they slashed a lot of engineers? Sounds great for job security.
    You are right, sounds like a fabulous opportunity to move to.
    Just because they have no revenue and no customers...hey, sounds like a fabulous IPO. Not.
    lightreceding 12/4/2012 | 11:09:52 PM
    re: Redback's Ready to Rise Again Prockets burn rate was already about half of Redbacks before they laid off 30 engineers. Procket is focused on routing. Redback is trying to break in to routing after starting in aggregation (only static routes), they have no significant routing sales. Procket is supporting one product line, Redback is supporting two totally different product lines and has twice engineers of a focused compay. The SMS line is dying and the technology is obsolete and the Smartedge line is failing to see significant sales. Redback is struggeling to put SMS features on the Smartedge products and maintain their hold in aggregation in the face of severe competition from Juniper. No one said that Procket is a fablous IPO prospect, they still have a long way to go, but they do have some advantages over Redback and might be able to be around when business picks up and have a new technology product. Even after the restructure if all goes according to plan Redback will be losing around ten million per quarter with SMS sales droping and Smartedge sales failing to rise. Redback has been racked by internal politics and the Smartedge progress has been deadly slow. Although Redback has customers they are not happy customers and are busy testing the Juniper products as Redbacks sales linger at loss levels. Juniper has consistently competed against Redback and taken away major business and as customers build new broadband networks they are moving away from the obsolete SMS as most of them are only buying it because it is certified and fits in their existing networks.
    data_guy 12/4/2012 | 11:09:52 PM
    re: Redback's Ready to Rise Again At least Redback has a chance at a new life thanks to their getting rid of Slick Vick. I love the phrasing of the press release about that... significantly lacking in "wishing him well on his new endeavors" and "has left to pursue new opportunities". HOOWAH!
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