Tekelec and Santera Systems to combine next-gen switching businesses into a Tekelec subsidiary called Santera, a Tekelec company

April 30, 2003

3 Min Read

CALABASAS, Calif. -- Tekelec (Nasdaq:TKLC) and Santera Systems, Inc. today announced that they have signed a definitive agreement to combine their next-generation switching businesses to better address the needs of telecommunications service providers. The business, which includes investments of cash and strategic assets from both companies, will be a majority owned subsidiary of Tekelec and will be called Santera, a Tekelec company.

The transaction creates a switching solutions center of excellence for Tekelec in Plano, Texas, Santera Systems' current headquarters. The switching solutions center will complement Tekelec's existing signaling solutions center of excellence in Research Triangle Park, North Carolina.

"The combination of Tekelec and Santera Systems leverages the strengths of the two companies' current packet telephony resources and positions the new subsidiary with the intellectual and technological assets to take advantage of evolving market opportunities," said Fred Lax, President and CEO of Tekelec. "Our combined next-generation switching unit will have the product portfolio, operational expertise, global reach and financial strength to position ourselves to be a preferred switching solution provider for service providers worldwide."

David Heard, CEO of Santera Systems and President of the new subsidiary, commented, "We are excited about this transaction because it accelerates our existing product development activities, while also increasing our core switching and signaling competency, which is essential for the transition from circuit to packet networks. Santera, a Tekelec company, will be the clear choice for carriers seeking an innovative and nimble supplier with the operational excellence necessary to deliver and support carrier-grade solutions."

Under the terms of the agreement, Tekelec will contribute $28 million in cash and its existing packet telephony business. Santera's current investors will contribute its assets and an additional $12 million in cash. Initially, the division will be 52% owned by Tekelec. Tekelec will also have the ability to increase its ownership percentage in the new subsidiary up to 62.5% and has the option to purchase the entire remaining interest during the period from July 1, 2005 through December 31, 2007. The transaction is expected to close before the end of the 2nd quarter, pending U.S. anti-trust approval.

Fred Lax, Tekelec's President and Chief Executive Officer, will be chairman of the new unit's Board of Directors. Marty Kaplan, current chairman of Santera Systems' Board of Directors, is expected to join Tekelec's Board of Directors, upon closing of the transaction. In addition, Marty will continue to work closely with the Santera management team and its new Board. Tekelec will have a majority of seats on the new Board of Directors.

Lax concluded, "With this transaction, Tekelec significantly broadens and strengthens its product portfolio, while mitigating our risk, minimizing the impact to Tekelec's earnings and maintaining our solid balance sheet, while positioning ourselves for future growth opportunities. The combined business possesses significant telecom expertise focused on and dedicated to next generation switching solutions. We are also delighted to continue working with Marty Kaplan, who has a distinguished track record in the telecommunications industry, most recently serving as executive vice president of SBC where he was responsible for the integration of SBC Communications with Pacific Bell, Southern New England Telephone and Ameritech."

On a GAAP basis, and to a lesser extent on a non-GAAP basis, Tekelec expects the transaction to dilute its 2003 and 2004 EPS. Tekelec expects the transaction to be EPS accretive in 2005. The difference in expected non-GAAP and GAAP results is due to the amortization of acquisition-related intangibles.

Tekelec Inc.

Santera Systems Inc.

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