Report: Tellabs mulls offer from Nokia-Siemens

Tellabs is mulling a $7-billion acquisition offer from Nokia Siemens, according to a report this weekend from TheStreet.com.

At around $16 or $17 per share, the purported price would be more than 15 times analysts’ estimates for Tellabs’ earnings next year, according to a note issued today by UBS Investment Research. “However, we believe the strategic value of Tellabs is higher given its large incumbency with Verizon and AT&T.

As a mid-sized vendor with major carrier customers such as Verizon Communications, Tellabs has long been considered a likely target for overseas entities intent on penetrating the North American wireline space. A deal with Nokia-Siemens would mirror Ericsson’s acquisition of Redback Networks last year.

Tellabs’ Chief Executive Officer Krish Prabhu has long touted the company’s incumbent supplier status with major carriers as a key asset, referring to it as “beach-front property,” and dropping prices of some products in order to maintain it.

Recent setbacks may pressure Tellabs toward making a deal, TheStreet.com said. The vendor’s first-quarter revenue was down 12% from a year earlier, due in part to weaker sales of access gear to customers such as the former BellSouth, now AT&T. Tellabs is scheduled to report its second-quarter earnings on Tuesday.

If Nokia-Siemens does acquire Tellabs, it could also spur further consolidation in the equipment space, according to a research note issued this morning by UBS Investment Research. For example, UBS wrote, “Such a deal may further pressure Nortel to do a deal, and Nortel may revisit Avaya or look to acquire 3Com or Sonus.”