Tellium Lowers Its IPO Ambitions

The IPO market is still a grim place, as shown by Tellium Inc.'s latest S-1 filing with the Securities and Exchange Commission. After going great guns in its first filing last year, Tellium, which refiled this week, is now shooting significantly lower, reducing the price range on its offering to $8-10 per share from $13-15.

It's a long way from the booming optical IPO market of last summer (see Optical IPO Market Sizzles and Avici and Corvis Make Stunning Debuts).

Consider this: Just over a half year ago, Corvis Corp. (Nasdaq: CORV), another optical switching company, was able to raise $1 billion in the IPO market and attain a valuation of $28 billion on the first day of trading. Corvis now trades with a market capitalization of $2.8 billion, with shares trading at $6.78, 81 percent below its IPO price of $36.

Now let's take a look at Tellium's updated filing. It's not only dropped the price of the offering, but the number of shares offered has also decreased to 15 million from 17.5 million. This means possible proceeds from the offering have fallen below $150 million from the more than $260 million first expected when it filed last year.

Given the large private placement round ($212 million) raised last year, those close to Tellium's bankers say the IPO will serve more as a marketing event than anything else. Thomas Weisel Partners, with the help of Goldman Sachs & Co. (NYSE: GS), handled the round.

Tellium's filing says that as of December 31, 2000, the company had about $188.2 million in cash and equivalents. The filing further states that with the IPO, its current cash, and its available credit, Tellium has enough financing to get it through the next calendar year.

The other interesting bit in the new S-1 filing is that Goldman Sachs is now neither a lead nor a co-lead manager for Tellium's IPO. Last month, Light Reading was the first to report that Tellium had switched lead bankers from Goldman to Morgan Stanley Dean Witter, which was not previously involved in the offering (see Tellium Switches IPO Bankers). Thomas Weisel Partners is co-lead on the offering, supported by UBS Warburg, CIBC World Markets, and Wit Soundview (Nasdaq: WITC).

The company still has three customers, two of which are Tellium shareholders. Last year, 78 percent of its revenues came from its contract with Dynegy Inc. (NYSE: DYN) (formerly Extant Inc.).

Dynegy has an agreement with Tellium that runs through 2003, but it's not contractually obligated to buy anything outside that agreement, and Dynegy has an out if Tellium doesn't meet certain goals. Also, because of the warrants Dynegy holds, Tellium has made adjustments to the revenue it reported from Dynegy, according to the recent filing. Meanwhile, Tellium's accumulated losses have climbed to around $156.1 million (see All Eyes on Tellium IPO).

That said, considering what else is on the IPO menu these days, Tellium still has more going for it than most (see Top Ten Private Companies: August 2007 and Tellium).

-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com

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