Fixed wireless merger re-evaluated

Profit warning puts Western Multiplex/Adaptive Broadband union on hold

When Adaptive Broadband last week announced that its fiscal second quarter sales were about 75% below expectations, not only was its share price halved, but its agreement to be acquired by Western Multiplex went back to the drawing board.

Adaptive Broadband blames shipping delays on $13 million worth of orders for the drop in its quarterly sales. Sales for the quarter ended up at $8 million, down from an expected $31 million. In light of this development, Western Multiplex has decided to re-evaluate the original acquisition agreement, which now is worth about $455 million.

"We're evaluating all the alternatives in terms of the transaction. We don't know how the transaction is going to turn out at this point. We'll have to figure that out in the next week or two," said Jonathan Zakin, chairman and CEO of Western Multiplex. "In terms of our business, we're very comfortable with the forecasts, and our business is very strong as a stand-alone entity. We don't think it's going to affect us."

In November, Western Multiplex and Adaptive Broadband agreed to merge to help consolidate the broadband fixed wireless market.

Originally expected to close during the first quarter of 2001, the merger was intended to create a company that could offer both point-to-point solutions (Western Multiplex's focus) and point-to-multipoint products for last-mile access, campus and enterprise connectivity and wireless access backhaul (Adaptive Broadband's focus).

Because Western Multiplex wants to become a more well-rounded player in the fixed wireless space, it is pursuing market share in several different areas, including mobile wireless backhaul, campus and enterprise connectivity, and fiber extension. Adding last-mile access to its bag of tricks would complement these efforts, which explains the attraction to Adaptive Broadband.

Although Adaptive Broadband's failure to meet expectations has caused the company's share price to drop, some analysts do not believe this will cause the merger to collapse.

"The merger is not dead; the companies just need to reassess," said James Mendelson, an analyst with The Strategis Group. "Western Multiplex is just questioning the viability of Adaptive Broadband and its ability to become one of the leaders in this industry. They want to buy someone who will be a leader in the marketplace."

Adaptive Broadband is not opposed to taking a second look at the original agreement.

"We believe both companies' commitment to the merger has not changed nor has the strategic nature of it," said Stephanie Day, vice president of investor relations at Adaptive Broadband. "We will work something out that will be equitable."

Regardless how their merger transpires, the fixed wireless market is expected to remain strong.

"I do not think that [this situation] symbolizes issues for the fixed wireless market," Mendelson said. "There is no slowdown in the market, but there have been slips and falls that Adaptive Broadband has had in meeting the demands for next generation equipment."

Adaptive Broadband is expected to announce further news at or before its second quarter earnings and sales report on Jan. 25.