In one of the more exciting combinations of late, Tellabs this spring moved to buy AFC for $1.9 billion in cash and stock. The deal brings together two very successful vendors that play at opposite ends of the network — Tellabs on the transport side with products like cross-connects and multiservice switches, and AFC on the access side with a variety of traditional telecom and newer FTTP gear.
Krish Prabhu, CEO and president of Tellabs, says the combination should enable the new company to better compete with other large vendors in the telecom space.
“There is no overlap” of products between the two companies, adds John Schofield, chairman and CEO of AFC. “The product lines are very complementary.”
Both companies are focused on providing solutions to incumbent service providers in North America and abroad. AFC got its start catering to independent service providers, which it continues to serve, but has expanded to also win deals with large incumbent carriers. For example, Verizon last summer tapped AFC as its key FTTP active equipment supplier.
Upon completion of the AFC-Tellabs deal, Schofield will become COO and a director of Tellabs. The Tellabs board will be expanded to include three AFC directors, including Schofield, increasing its size to 12 members.
The combined company will employ about 4,100 people, including nearly 1,000 in international locations. It will have research and development centers in California, Florida, Texas, Virginia, Denmark and Finland. It will have 41 sales offices in 29 countries.
AFC stockholders will receive 1.55 shares of Tellabs common stock and $7 in cash for each AFC share. Based on Tellabs’ closing price on May 19, that is $21.24 per AFC share. Tellabs stockholders will own about 75 percent of the company and AFC stockholders will own 25 percent of the company upon the close of the deal.
Although Tellabs was once considered a staid old-timer in telecommunications, in the past couple years it has snapped up a few companies in a move to court new opportunities. Prabhu says the company will “absolutely not” be looking for additional acquisitions in the next few months. “We will be very focused on integrating these two companies successfully,” he adds.
Tellabs acquired next-generation digital cross-connect vendor Ocular Networks in January 2002. In addition to a new product line, the Ocular deal brought Tellabs an aggressive new leader in the form of Ed Kennedy, founder of Ocular, who in a surprise move recently stepped down as the leader of Tellabs. Prabhu, a former Alcatel executive, took the reins of Tellabs this February. In a more recent acquisition, Tellabs shelled out $135 million for Vivace Networks. The purchase of the multiservice edge switching/MPLS vendor launched Tellabs onto the services layer, a hot new area in networking. The deal brings together two very successful vendors that play at opposite ends of the network.
