Tellabs Buys Its Supplier AFC For $1.9 Billion

Telco hardware provider Tellabs said it would
buy rival network gear maker Advanced Fibre Communications in a deal valued at $1.9 billion in cash and stock.

The deal, expected to close in the second half of 2004, lines up two suppliers of network access and transport and positions the company for upgrading networks.

During a conference call to discuss the purchase, Tellabs CEO and President Krish Prabhu said the combination with the merger of the two companies creates a compelling Tier 1 supplier for access and transport. “Because of sustained end customer demand we believe that over the next several years there will be an opportunity to upgrade the access and transport network,” Prabhu said.

Prabhu said future opportunity and growth will be driven by four critical factors: the relief of capacity bottlenecks, enhancing networks for broadband service, the retirement and rehabilitation of old networks and the growth of providers building out new networks.

“We strongly believe that the merger of these two companies will ideally position end to end service provisioning with the quality of service that’s required to support this multitude of services,” Prabhu said.

Headquartered in Naperville, Ill., Tellabs makes gear that helps carriers in 100 countries manage bandwidth. According to Tellabs, more than two-thirds of voice and Internet traffic in the U.S and other countries at some point flows through their equipment.

Petaluma, Calif.-based AFC sells broadband network access equipment to more than 800 service providers worldwide and competes with companies like Nortel and Lucent.

Both Tellabs and AFC have trimmed their workforces and undergone upheavals in recent years. A year ago AFC closed a plant in Illinois and shed 11 percent of its workforce, citing a downturn in demand. Tellabs also closed a 545,000-square-foot facility in Bolingbrook, Ill., last year and outsourced the manufacturing of its North American products.

In April 2001, Tellabs alone had 8,900 employees. The new Tellabs AFC merged company will have a combined total of about 4,100 employees across almost 1,000 global locations. AFC chairman and CEO John Schofield will become chief operating officer and a director of Tellabs.

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