Tellabs Inc. said it will acquire Coherent Communications Systems Corp. in a deal valued at $670 million.
Coherent makes echo-cancellation and conferencing products for international telecom companies and cellular and personal communications services providers.
Tellabs manufactures echo-cancellation products and voice and data transport and access systems used by communications services providers.
Under terms of the agreement, Coherent stock will be exchanged at the ratio of .72 shares of Tellabs common stock for each share of Coherent common stock.
As both companies have interests in echo cancelers, Tellabs executives expect a smooth integration.
“This transaction is a strategic plus for Tellabs,” said Michael Birck, Tellabs president and chief executive officer. “Coherent’s focus on international markets will nicely augment Tellabs’ North American echo-canceler activity, and the combination should result in innovative new speech-enhancement products for both markets.”
“We see this merger as a real win for our customers, employees and stockholders,9 said Daniel McGinnis, Coherent’s CEO.
In a conference call detailing the merger, Brick said Tellabs approached Coherent with the merger idea in September. “Growth in our sales was in the plus-30-percent range for the last several years and one of the things we noticed … was that Coherent was always there as well,” he said.
Birck said the merger will not only eliminate a competitor of Tellabs, but also will strengthen the company’s weaknesses. Two-thirds of Tellabs’s revenues last year came from domestic sales, while an equal amount of Coherent’s sales were to customers outside the U.S. market. Birck said Tellabs had wanted to increase its international portfolio and decided to do so by acquiring Coherent. “On the international side of things, they were always there before we were,” he said.
Following the merger, the combined company plans to explore new product-development activities for next-generation call-quality solutions.
In particular, Birck said he believes the cellular and wireless industry will be the primary catalyst for echo-canceler growth in the future.
“We think that while the growth rate of voice services may slow (from 20-30 percent to 10 percent) … our calculations at this point is wireless being the driver.”
McGinnis will remain with the company in an executive capacity and will report to Birck
Prior to the announcement, Tellabs’ stock rose from $51.30 on Feb. 9 to $57.90 on Feb. 13. At press time, the Tellabs stock fell slightly to $57.10.
