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
allidia 12/4/2012 | 8:43:23 PM
re: Tellium Lowers Its IPO Ambitions I think Tellium is showing their own strength by going IPO soon. Give em credit not heck. Someone's gotta break the tide and get the new money flowing back to the IPO market.
optiboom 12/4/2012 | 8:43:24 PM
re: Tellium Lowers Its IPO Ambitions Time for the Tellium executives and the board to get real! The train has left the station. Get the big $30B IPO for your resumes the next time.

With no IPO, they can't effectively acquire companies with complimentary technology. In the meantime, the big guns will work from the edge into the core.

A great $8-10/pershare acquisition, before some of the established suppliers develop their own technology in the same space.
big_cecil 12/4/2012 | 8:44:54 PM
re: Tellium Lowers Its IPO Ambitions If you were going to invest in an optical stock,
which would it be ?



Tellium IPO ?

Tellium IPO might get a 30% pop, but will then
fade away like Riverstone's recent IPO.

Long term my money would be on SCMR or CIEN.

big_cecil 12/4/2012 | 8:44:55 PM
re: Tellium Lowers Its IPO Ambitions Your comparisons are flawed:

Tellium has STS-48 granularity OEO switch.

SCMR has optical switch + next gen SONET ADM with
STS-1 granularity due any day + 10X Tellium revenues.

CORV is only all optical long haul product. Tellium has nothing like that.

Cyras is next generation SONET ADM which CIEN needed to complete their product portfolio. Again, nothing like what Tellium has.

I was guessing $500M, since Tellium is nothing more than Monterey (Cisco acquired), or Lightera
(Ciena acquired), in a bad market environment. Also, both those products are based on cutting
edge ASICs developed in house which make their IP more valuable. And, they have STS-1 granularity as a result of those ASICs. Tellium has STS-48 granularity because they dont have any IP, they used off the shelf solutions.
drone387 12/4/2012 | 8:45:20 PM
re: Tellium Lowers Its IPO Ambitions >Tellium should just give in to one of the
>potential buyers and forget this IPO nonsense.
>Any thoughts on what they are worth ?

Market Capitalizations:
SCMR $3.7B
ONIS $3.5B
CORV $2.6B

Recent Acquisitions:
Cyras Systems $1.6B = 27M CIEN shares @ $57.625

>$500M seem reasonable ?

Only as a fire sale price.

Tellium's internal valuations from the last round of funding are probably higher than the market will currently sustain. The VCs that invested in the latest round can at least wait for the market to recover and/or the company to potentially take off. Selling at this point means they eat a big loss.
optical illusion 12/4/2012 | 8:45:22 PM
re: Tellium Lowers Its IPO Ambitions
Goldman is the tier one underwriter? Goldman had cache when Rubin was at Treasury. The glory days are over, son.
big_cecil 12/4/2012 | 8:45:23 PM
re: Tellium Lowers Its IPO Ambitions Tellium should just give in to one of the
potential buyers and forget this IPO nonsense.

Any thoughts on what they are worth ?

$500M seem reasonable ?

goipo 12/4/2012 | 8:47:03 PM
re: Tellium Lowers Its IPO Ambitions missed the best IPO window last year because of its software, according to people who knows the company, their software has some fundamental problem to prevent the product being deployed to the field.
It is such a shame that Goldman Sachs is now not in the deal. By all means, Goldman Sachs is the tier-1 under-writer, if they get out at such late stage, which means, something is definitely wrong with Tellium.
Staffed with almost 600 people, Tellium is now at the runway that they have to take off, even though the weather is bad.
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