Archive for January 7th, 2008

Buying on the rumor

“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.

CES: After keynote No. 9, Gates calls it quits

Bill Gates CES 2008LAS VEGAS – Yep, after delivering the keynote address at the Consumer Electronics Show eight times since 1994, Microsoft chairman Bill Gates is giving up his annual role as technology seer for a life focused on his charitable foundation. If you hadn’t heard, Bill Gates is retiring from Microsoft, and he’s going out with a little humor. At CES he spoofed his rather eccentric and geeky personality with a video in which he called everyone from Bono to Hillary Clinton looking for some activity to occupy his time (to see the keynote Webcast see Microsoft’s Press Pass page).

Starting next year, we’ll have to listen to someone else’s vision of technology at CES. Maybe it’s blasphemous to say, but I think it’s for the best. Gates and Microsoft haven’t exactly been on the cutting edge of innovation of late. The company sells an awful lot of software, but the average person on the street stopped getting excited about the newest release of Windows in about 1995.

Frankly the most spectacular jumps in consumer electronics in recent years have not come from Microsoft. Apple gave us the portable digital music player. Microsoft gave us the Xbox, but only after Sony and Nintendo turned the game console into a massive global market. And in a technology closer to home, Microsoft’s probing into the mobile space has been mediocre at best–Palm invented the smartphone, while RIM and Apple perfected it for the enterprise and the consumer, respectively.

Sound like I’m Microsoft bashing? Perhaps I am a bit. But I’m not criticizing the company or its business model. It makes great products (well, some are greater than others) that people buy by the boatload. But it’s been quite some time since Microsoft came up with the next big thing. Just look at what Gates and Microsoft cohorts preached from the CES pulpit: social media, home networking, even video sharing. It looks neato, but it’s hardly a new gospel. We’ve been seeing the same stuff presented at conferences for years.

Maybe that’s the value of Gates’ keynotes. Just as Microsoft’s software might allow it to turn a cutting-edge innovation into a mass-market phenomenom, maybe Gates’ keynotes validate those innovations to the industry at large. If you saw Bill talk it up at CES, then you know the technology has legs. But maybe it’s time the keynote was delivered by a true visionary in the technology world instead of the industry’s most successful reactionary.

Keep tuned to Unfiltered this week. Associate Editor Sarah Reedy and I will be making daily updates to the blog.

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