UBS: Tellabs’ merger prospects cool

Despite recent reports of merger discussions, Tellabs is unlikely to be acquired by another telecom equipment vendor any time soon, according to UBS Investment Research.

“While an acquisition of [Tellabs] is possible in the longer term, we believe it is less likely in the short term,” UBS said in a research note issued today.

Though UBS analysts had previously identified Nortel Networks and Nokia Siemens Networks as likely potential acquirers of Tellabs, they now say weak second-quarter results from both suitors have made large purchases riskier.

“Following a weak 2Q, [Nokia Siemens] is likely to focus on integrating the two companies rather than large M&A,” UBS said. “[Nortel] also had a weak 2Q, resulting in a sagging stock price, while a weak credit environment would make a debt offering for M&A much more expensive.”

Speaking at an investor conference last week, Tellabs Chief Executive Officer Krish Prabhu was again asked if ongoing merger negotiations were preventing the company from making a decision about how to use its available cash. Prabhu declined to answer.