Tut absorbs Copper Mountain technology and talent

Tut Systems announced late Friday it has signed a definitive merger agreement with access equipment vendor Copper Mountain Networks with the aim of applying Copper Mountain's technology and engineering talent to its own video content processing endeavors without entering Copper Mountain's chosen product areas.

Tut will issue 2.5 million shares of its common stock to Copper Mountain shareholders in a deal worth about $10 million in stock. The deal follows Tut's acquisition last month of another equipment vendor, CoSine Communications, for 6 million shares, worth about $24 million.

Tut expects the deal to close in the second quarter of this year and be accretive beginning in 2006.

Tut was tempted to buy Copper Mountain by both "market opportunities and specific customer opportunities," said Tut chairman, president and CEO Salvatore D'Auria. And the primary reason for the deal was Copper Mountain's product and engineering "resources," Tut Chief Financial Officer Randall Gausman said, which will be "refocused" and applied to expanding Tut's IP video business.

Though Copper Mountain's main product lines were its broadband remote access server (BRAS) and DSLAM products, Tut said it has no plans to enter either market, instead maintaining its focus on multi-edge video content processing. Tut will "repurpose" Copper Mountain's products for the video market, apply 30 of its engineers to the video market and attempt to market video-based products to Copper Mountain's 15 or so existing customers, whose agreements Tut will continue to honor.

"I look forward to meeting with [Copper Mountain's customers] beginning in the next couple weeks, because we expect some of those folks will have some video content processing requirements," D'Auria said. Copper Mountain was known to have gained particular traction among independent operating companies in North America.

Copper Mountain's VanTage BRAS platform has many video-related capabilities that have been untapped so far, D'Auria said. Before the end of the year, Tut will introduce a "repurposed" incarnation of the VanTage, which he said, "will surprise a lot of people? it's going to be a lot of fun." Tut's Astria SC service controller, which has not yet begun shipping, will be discontinued and instead evolve into the new VanTage-based product.

As part of the merger deal, the two companies began working jointly on development of the new products last Friday, though the merger is not expected to close until the second quarter.

"It was the classic make-vs.-buy decision," D'Auria said. "Video is happening now, so we want to do things now as opposed to next year."

Tut will retain Copper Mountain's development facility in San Diego, Calif., and transfer workers in Copper Mountain's Palo Alto, Calif. facility (where the CopperView network management system is developed) to its own offices in Pleasanton, Calif.

In late August 2004, amid an ongoing erosion of cash, Copper Mountain revealed it had retained Raymond James & Associates to advise it in the pursuit of "strategic alternatives." Late last month, the company announced it would cut most of its workforce, including its entire sales team, by March 22.