About a month after the Marconi group deal was announced, companies finally began to knock on AFC’s door for a buyout. People were now convinced that AFC could be a player in Tier 1 carriers as it would continue its business with BellSouth. Nobody believed in FTTP. Not even us. Well, I should say everyone except Verizon. Let me provide you an anecdote from the fall of 04 to illustrate.
We had just shifted our OLT PON cards (the Central Office End of the Electronics) from using a Broadlight Optical Transceiver to an NEC one. Broadlight was having challenges with their module and we wanted to go to a larger supplier. When we switched our order the local Sales Rep said that they had a big contingent from Japan that wanted to come talk to us. The entire conversation boiled down to one question: “Why did you place your entire order in one batch?” They thought we had placed a one time order for the entire life volume of our purchase. John Schofield and I looked at each other and I answered: “Uh, we are going to place the same order next week.” They were stunned. The room was silent for a couple of minutes and then they went back over things to make sure they understood us properly. There were some specialty fiber components in OLT module construction that we were consuming the entire World’s supply of for quite awhile.
Anyway, back to the M&A front. We were approached by 3 companies. Siemens, Cisco and Tellabs all placed calls to us. Siemens went away very quickly as they were in the middle of the bribery scandal and cut off talks quickly.
Tellabs had actually done a lot of diligence in the late summer of 03. They sent an entire team out from HQ to talk to us. We spent about a week going over things with them. In the middle of this visit, a Blackberry phone save Leon Blackburn’s life. He was alergic to nuts and inadvertently got ahold of a peanut butter cookie. He was in the men’s room late at night at our lawyers. He could not call out to find anyone to help him, but was able to send an email to Amy Paul asking for help. She got the paramedics there in plenty of time before he went into anaphylactic shock. We thought nothing came of those meetings as there was no follow up.
Cisco started by Mike Volpi calling up and setting some meetings with primarily Cerent folks. They did several diligence sessions. These eventually led to phone calls between John Chambers and John Schofield. We were told that AFC was the only company they were considering in Telco Access and they would present this to the BoD. They called back to say the BoD had decided against Telco Access. Not too much later, they bought Scientific-Atlanta. So, Cisco once again bet on cable over telco. They had bought into DSL, but actually tried to sell us the line card manufacturing at one point. CMTS systems were a big Cisco market after that. So, Cisco was out of the running
Tellabs came back for another round of diligence with Krish Prabhu, their new CEO. We went to Chicago for several meetings. I actually saw Brad Pitt and George Clooney coming off the elevator in our hotel! It was also the only time I ever rode in a limo for M&A. Given the depth of their previous diligence, things went very quickly. They gave us an offer and the deal was announced in May of 2004. Contrary to what some folks have heard, this was the only actual bid for AFC. We would have liked more bidders, but Tellabs was the only one to step up.
With the diligence we did on Tellabs, we concluded that this would have to be the first step in a much larger process. We thought AFC+Tellabs was still too small. However, between all the products that the new Tellabs would be an attractive acquisition. At the same time, things were going horribly wrong on the FiOS lab front. I will talk about that on Friday.
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