Tellabs CEO Krish Prabhu said the deal will position the company to grow with its customers in the industry’s sweet spot of broadband services.
Prabhu, who joined the company in February, is clearly anxious to use Tellabs’ $1.18bn cash pile to inject new life into a company that has suffered badly during a period when carriers were reluctant to spend. Tellabs revenue fell from $2.19bn in 2001 to $980m in 2003 when it recorded a net loss of $241m.
A revival in spending has changed its fortunes, and in its first quarter to April 2, it recorded net income of $13.4m, its first quarterly profit in two years, on revenue 18.6% higher at $263m. It forecast that revenue in the current quarter would increase by 5%.
With buoyant demand for broadband access equipment, AFC suffered less in the recession and in 2003, it recorded net income of $26.7m on revenue 3.1% higher at $333m. The market felt that Tellabs had overpaid for AFC and its shares fell 12.51% to $8.04.
Terms of the bid are 1.55 shares of Tellabs and $7 cash for reach AFC share. While the cash portion of the deal will leave Tellabs more than $600m poorer, AFC had cash and marketable securities of $854m at the end of March, so its own cash resources will be enhanced when the deal is completed.
Tellabs has made it clear it is looking for acquisitions in the wireless, cable, internet voice and access markets, so AFC is likely to be the first of several acquisitions.
