“Buy on the rumor, sell on the news.” So goes the old Wall Street saying, and so go investors, in large numbers. One of the problems with that notion, of course, is that it encourages rumors in all sorts of unhelpful ways. Take for example the story of Carrier Access, an equipment vendor that put itself up for sale last summer and was acquired by another vendor, Turin Networks, in December.
In early August, just days after Carrier Access announced it was seeking strategic alternatives, a news story in one prominent online publication, citing anonymous sources, claimed Tellabs was “close to acquiring” Carrier Access for nearly $7 per share, having been in discussions on the subject “for a while.” According to information filed only recently by Carrier Access, the company had had discussions with numerous potential suitors in the months during which it was seeking strategic alternatives, but in all that time, it had received (or in one case, sent) non-binding “indications of interest” from only four companies: Turin Networks, a private equity fund, a small-cap public company and a company that is publicly traded outside the United States. None of those sound like Tellabs to me. With a market cap above $2.6 billion, it’s a bit of a stretch to call Tellabs “small cap,” since the term usually refers to companies with market caps between $250 million and $2 billion. But even if it was, the small-cap company in question didn’t send Carrier Access a letter of interest until November 15, 2007. And even in mid-November, Carrier Access said, the small-cap company had not yet begun due diligence on its would-be target.
So how could Tellabs have been “close to acquiring” Carrier Access back in early August? I’m not sure.
At the end of September, the same online publication wrote again of the supposedly imminent Tellabs deal, claiming, “One source says the board was set to vote on a number of proposals [this week], with Tellabs being the front-runner.” The board did meet that week to discuss potential deals, but again, at that point, Carrier Access hadn’t received a formal offer (even a non-binding one) from any company matching Tellabs’ description, so being “the front-runner” seems doubtful, to say the least. According to Carrier Access, the board decided at that meeting to send its own letter of interest to the non-U.S. publicly held bidder, to express an interest in acquiring it in an all-stock transaction, while continuing discussions with the other three parties. (According to the filing, that non-U.S. firm wanted to execute a reverse-merger, in which Carrier Access would technically acquire it but end up owning the minority of the combined company, so that the resulting company would trade on the NASDAQ.) Carrier Access sent that letter on October 1, 2007 and spoke with management at the non-U.S. company shortly thereafter, continuing discussions with the other bidders.
Meanwhile, the vendor’s joint product partnership with Tellabs–perhaps the main justification for a Tellabs acquisition–had dissolved.
In early November, the aforementioned online publication claimed Carrier Access was getting acquisition offers “in the $5 to $6 range,” again citing anonymous sources. That would be interesting if true, since the company agreed to be acquired for $2.75 per share later that month.
I’ll leave it to others to speculate as to the motives of those anonymous sources or how their assertions came to be reported as truth. I’ll simply say: Don’t believe everything you read. And don’t buy on the rumor.