Tellabs Gives Itself Away in Private Equity Buyout

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Tellabs Inc. (TLAB) is being acquired in a go-private transaction. The deal values the telecom equipment maker at $2.45 per share, and a private equity firm named Marlin Equity Partners and its affiliates are the acquirers. The problem here is that Tellabs is giving itself away.

Does a 4.3% premium buyout price sound very enticing when shareholders have been stuck in the mud for years? Tellabs closed at $2.35 on Friday, in a 52-week range of $1.90 to $3.63. About the last memorable thing that happened for Tellabs was a $1.00 special dividend at the end of 2012, and Tellabs does still have a dividend yield above 3%.

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Will the company make money on its own without the consideration of a merger? Thomson Reuters has estimates of -$0.01 in earnings per share this year, but $0.05 in earnings per share in 2014. The last positive earnings from operations came in fiscal 2010.

This transaction value represents a total equity value of approximately $891 million on a fully diluted basis. The deal has been approved unanimously by its board of directors and is expected to close in the fourth quarter of 2013.

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Apparently there is not much value here. The company claims that its review of strategic alternatives included more than 30 potential buyers as part of a competitive bidding process. From an outsider's view, this does not sound very competitive.

Tellabs had nearly $800 million in cash and short-term equivalents as of June 30. Even after you back out all the liabilities, its total shareholder equity was $999 million and its net tangible assets came to almost $875 million.

Do you remember the days when Tellabs and Ciena Corp. (CIEN) were involved in a merger that broke apart? Tellabs had a closing bell market value of $835 million, and Ciena had a closing bell value of almost $2.8 billion. That was then, this is now.

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