The Endgame at AFC: Tellabs closes the deal

As things got a bit better with the FiOS rollout and product quality the Tellabs deal continued. Given the tone of the message from Verizon, Tellabs decided it was able to lower its offer. For those who have never been a part of these things, there are always clauses in agreements about “Adverse Material Changes”. Given that we had to talk about the breach letter from Verizon publicly, Tellabs certainly had the opening to renegotiate.

http://www.lightreading.com/ethernet-ip/honey-i-shrunk-the-price/d/d-id/605798

I have to say that many folks inside AFC were quite unhappy with the change. This included lots of Employees, Managers and Executives. Tellabs had a pretty bad history in acquisitions and so they were viewed as a marginally good merger partner. The Board of Directors was quite unsure what to do. I know John and Keith were in favor of pushing forward and closing the deal. Eventually the Board called in Jeff Rosen, Jorge Valdes and me to ask our opinions about the deal. I would say that we gave the deal weak support and I thought it was time to say a bit more of my views on the topic.

From my perspective, the entire Executive Team was worn out. We had lived through the popping of the Optical Bubble and come through stronger. In the last 18 months of the company we won a huge RFP and signed a good sized merger. We had completely executed on our plan of becoming a Tier 1 vendor. We were stretched thin and it showed. John was particularly worn out and I understand why. He went through hell with all of this. In my mind, the only path forward was the merger. I thought if Tellabs pulled out our chances of holding together the Executive Team was zero and that meant building from scratch again. I thought our chances as a company surviving in that scenario were at best 50/50.

The Tellabs deal (from an AFC standpoint) did have one major upside and that was Krish Prabhu. When he was at Alcatel, we viewed Krish as a skilled oponent. What he thought of us, I have no idea. Alcatel generally viewed us as a pesky upstart, but we had put a rather large hitch in their gitalong starting in 03. We thought Krish would be a great leader for a Tier 1 Access Business.

For myself, it took until late October to know what would happen with me. I had to call Krish to get an answer. My pretext was to discuss the future of the AccessLAN group, but he told me that he wanted me to stay and work out with the new leader a role. I agreed and that is what happened.

As a final note on this topic, we actually had to count the votes. That is HIGHLY unusual in one of these things and the merger won by around 1% of the vote. On Friday, I am going to recap this story arc and set up the next phase.

Jim Sackman
FocalPoint Business Coaching
http://www.jimsackman.focalpointcoaching.com/
We Focus On Your Business – Time, Team, Money, Exit
Business Coaching, Sales Training, Web Marketing, Behavioral Assessments, Financial Analysis
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The Endgame at AFC: Keller and the FiOS Rollout

Last week we got to the point where Verizon sent AFC a letter about the poor quality of deliveries for FiOS Lab Tests. Well, things began to sort themselves out and in July Verizon announced service in Keller, Texas.

http://www.lightreading.com/ethernet-ip/verizon-announces-fttp-services/d/d-id/604413

Things were still pretty shaky from a product quality standpoint, but they were good enough for us to begin. And what happened was – Verizon sold the product like hotcakes. We completely sold out the first Optical Line Terminal (OLT) very quickly. I have no idea what they thought in Verizon, but we were stunned.

We had similar experiences in other locations as they began rolling out FiOS. But I have to tell you that Murphy stalked this project. What could go wrong did. A simple example is when Verizon got the first shipment of Optical Network Terminals (aka ONTs – the boxes put on the side of homes) they could not accept the way we shipped them. So, we had to take them back and repackage the shipment.

It wasn’t just us. There simply weren’t standards and methods that covered what we were doing. We often defaulted to methods that we could all at least look at. An example was environmental testing of ONTs. They were replacing the Network Interface Device (NID) that was on the side of the home. NIDs are passive. They are simply wiring. An ONT requires electronics to convert the Fiber Optic Signals to Twisted Pair, Ethernet and Coax. The only specification available (the one for NIDs) required us to add a LOT of hardening to the ONT. Was it required? Who knows, but the only specification that was for that kind of equipment said it was.

Verizon had to train a lot of people to change its deployments. We could tell when a new area started rolling out because problems we had seen in more mature areas started occurring again. We had lots of calls to help manage the roll-out. Many times our product quality didn’t even hit the top 10 issues that were going on.   We were just one piece of what was a huge project inside Verizon.

I think many people forget how hard it is to take technology and make it deployable by semi-skilled labor at a pretty high volume. Their goals were to be able to deploy 2 customers per day per tech and to do so at the same service level as Plain Old Telephone Service (POTS).

So as things went, FiOS was going to work. Which given our ONT cost was good and bad. But the Tellabs acquisition was proceeding as well. Which is up next.

Jim Sackman
FocalPoint Business Coaching
http://www.jimsackman.focalpointcoaching.com/
We Focus On Your Business – Time, Team, Money, Exit
Business Coaching, Sales Training, Web Marketing, Behavioral Assessments, Financial Analysis
https://www.eventbrite.com/e/sales-training-sales-success-intensity-powered-by-brian-tracy-tickets-8404400789

 

The Endgame at AFC: Lab Failure and the Verizon Letter

While all of this was going on, progress was happening on BPON for Verizon. I think a better way to say it would be that time marched on. As I have already said, there were no new people added to the team. We had a lab date to meet in February in 2004 and we missed it. I want to remind everyone that from October we had been working on the Marconi acquisition. So, nobody was doing much to impact the dates and quality of the BPON deliverables. This was primarily due to the lack of ability to focus on so many different initiatives.

Well, in February this began to change. There were new folks assigned but things were moving way too slowly. The reality was that the team assigned did not have the full experience necessary to complete the job efficiently. We had the people available to do the work but had them assigned to the current IOC release. This was all back to the inability of the Executive Team to make an agreement to put the right people on the job. This confluence of events was our failure in leadership. This should be an example to everyone on what happens when a team does not work together.

Over time the new people began to have an impact and we were able to turn over a minimally working product. And minimally is the correct word. Lab test failures were the norm, and fixes came slowly. One thing was clear at this point. Verizon was not kidding about the time frame for deployment. This was also something that was also not in our plan. It meant that we would have to ship ONTs at a significant loss. Well, this was shaping up as a peachy set of circumstances. And then we got “The Letter”.

The document was simple. Verizon was declaring that we were in breach of our FTTP agreement and were threatening to toss us out. Well, what actually happened is that they began plans to deploy the Quantum Bridge/Motorola solution. Given our lead, we would still hit the field first. Several other things happened right then. We had to put the existence of the letter out to our shareholders on the Quarterly Conference Call. This led to the start of a change in the deal with Tellabs.

For me personally, it led me to one of the toughest jobs I ever had. Since all of this was public knowledge there, we were going to get pounded by various forms of analysts and press at Supercomm 04. John Schofield and Keith Pratt decided it was best that they not go to this show. This left me as the only non-Sales Executive out there. On top of that, our IR person had retired and we had brought in a temp. I spent 2.5 days in that pit. I never got a break from people. I left the booth just twice. Each time to make a presentation. The worst part was that if I said the wrong thing I could queer either the Verizon or Tellabs deals. I have never been out alone on an island like that before or since and it was exhausting.

Don’t get me wrong. Keith and John were right not to go. It was just that this left the fate of hundreds of millions of dollars to my ability to shuck and jive in front of all kinds of folks. Many of the analysts and press I knew. Some I did not. What they wanted to know was very simple: What would happen with Verizon? What would the new deal with Tellabs look like? Would a Tellabs deal actually happen? My job was to be confident and say nothing. Or as close to nothing as possible.

Next week we get to install in Keller and close all these deals. Have a great weekend!

 

Jim Sackman
FocalPoint Business Coaching
http://www.jimsackman.focalpointcoaching.com/
We Focus On Your Business – Time, Team, Money, Exit
Business Coaching, Sales Training, Web Marketing, Behavioral Assessments, Financial Analysis
https://www.eventbrite.com/e/sales-training-sales-success-intensity-powered-by-brian-tracy-tickets-8404400789

 

Sonoma County News and Notes

As we come to the end of another year, you get to thinking about all the things that transpired last year and the upcoming challenges for 2014. I think that 2013 was a year that we can all see was the return of some sort of economic normalcy. We are not quite there yet and there are still lots of problems. I would argue that it is clear that we have turned a corner. And that is a good thing.

This next bit is not directly about Sonoma County but is an opinion about why this is happening. Not the recovery, but the bubbles. I blame the Internet. What I have seen is a lot of people investing in things that they have no idea of why they are doing it. We have always had a herd mentality in investing. Growth and Momentum plays are big. Now however, people believe they are better informed and are doing their own reasoning on these topics. But truly, we are not smarter than we used to be. I put it (with intended humor) that if your buddy that you know is stupid is making big money in something then that is the thing that you should get out of.  So let’s not think reading a couple of Internet posts makes us an expert!

In my adult life, I have heard two or three times that this bubble was different. That the economy had fundamentally shifted. Each and every time it didn’t. Real companies making real profits did fine, until they overextend themselves. People who jump in without knowledge get burned as they don’t think about the possible risks. If you all have taken nothing from my tales of AFC, then take this – LUCK played a part in our success. Pure unadulterated luck. We planned well sometimes. We executed well sometimes. And sometimes we just stumbled into things. That should be the lesson here. Humility. Realizing that good companies with good products or services fail or struggle, sometimes because of poor luck.

Back to Sonoma County, what I am hoping for in 2014 is a push to diversification in the local economy. The wine business is great and we seem to have found a niche in the Food Processing Industry as well. The Sonoma County Economic Development Board had a nice showcase of the growth of the brewery and distilling businesses locally. I think all of that is great, but I would like to see some more technology businesses here. I came from a small town in Upstate New York that was devastated economically when its primary employers left. The first link is about my home town.

http://en.wikipedia.org/wiki/Schuylerville,_New_York

http://www.nytimes.com/1990/03/25/magazine/schuylerville-stands-still.html?pagewanted=all&src=pm

I think the second link is the most poignant and impacts my views on this topic. Around 2000 we did a number of things to try to help the local tech sector, including opening up the Master’s Program in Engineering at Sonoma State University. There are now feeder programs at Sonoma State for this. I used to sit on the endowment board for this program and I am glad it is here. Of course, it is rarely talked about and we don’t take advantage of SSU like we should.

So, as we wander through this time of holiday mixers lets chat about these things. And have a wonderful day.

Jim Sackman
FocalPoint Business Coaching
http://www.jimsackman.focalpointcoaching.com/
We Focus On Your Business – Time, Team, Money, Exit
Business Coaching, Sales Training, Web Marketing, Behavioral Assessments, Financial Analysis
https://www.eventbrite.com/e/sales-training-sales-success-intensity-powered-by-brian-tracy-tickets-8404400789

 

The Endgame at AFC: M&A talks Heat Up

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.

http://www.lightreading.com/cable-video/tellabs-buys-afc-for-$19-billion/d/d-id/602658

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.

Jim Sackman
FocalPoint Business Coaching
http://www.jimsackman.focalpointcoaching.com/
We Focus On Your Business – Time, Team, Money, Exit
Business Coaching, Sales Training, Web Marketing, Behavioral Assessments, Financial Analysis
https://www.eventbrite.com/e/sales-training-sales-success-intensity-powered-by-brian-tracy-tickets-8404400789

 

The Endgame at AFC: Acquiring Marconi’s Access Business

Well, in the middle of the FiOS execution we added more onto our plates with our acquisition of Marconi’s North American Access Business. This was the real catalyst that kicked off the M&A cycle, although most people think it was FiOS. The reason is that nobody believed in FTTH in North America. People could see the revenue from Marconi and suddenly AFC went from a company with $20M in Tier 1 revenue to $200M in Tier 1 revenue annually.

Marconi was in real trouble. Unlike most of their counterparts, Marconi had paid cash for its bubble era acquisitions. The organization was on the brink of receivership. Their plan was pretty simple, dump divisions for cash. They would then use the cash to pay down their debt load. In 2001, Marconi corporate had already announced that they were pulling out of the Access Business in North America. I have already blogged that this immediately lost the division a lot of business with Sprint LTD (now part of Centurylink). What they did retain is a large relationship with BellSouth. BellSouth had a lot of new homes being built in high density subdivisions and used FTTC to reach those new homes. No other company in the US or even globally had that commitment to FTTC. This meant that the Marconi product was unique and no competitors had a similar product. BellSouth also deployed the Marconi DLC and Alcatel’s Litespan in other areas. They also deployed the Catena system to upgrade their SLC-5 base to DSL. They even had a small base of AFC product which was an unhappy piece of business for both companies.

Marconi pushed the marketing of the division in early 2003 and AFC did its due diligence. The division had negative gross margins at the time and because of this we were not very interested. We put in a minimal bid and forgot about things. FiOS was heating up in the fall. Their bankers called us back in the Fall telling us that parties were now beginning to enter real bids. We took a look and their gross margin had finally turned positive. It wasn’t great, but at least we could see our way to net positive business. Given our 2001 Business Plan, here was an opportunity to “buy” a significant chunk of Tier 1 market share. Given the amount of cash we had, this seemed like a no brainer investment.

The bidding heated up considerably. We were in a bidding war with the Alcatel group. We did 3 rounds of bidding and arrived at a price of $240M. This allowed us to go exclusive and truly begin negotiating a deal. And that deal was a nightmare to complete. There were lots of reasons and I will provide a lot more information about my issues, but just to start things off AFC had sued Marconi for $1B. The lawsuit was settled in 2000 but many of the attorneys on both sides were still in place. This meant that trust levels were non-existent and making progress was dificult.

I was in charge of Intellectual Property (IP) issues for our side. This was to be an asset sale, which means that the IP is actually what your are buying. The biggest problem was that the IP became co-mingled with other divisions. This included an International Access Division that would need a license back on all the IP that AFC bought. Yes, that’s right. Our purchase price had to include a free license on everything we just bought. My resolution to this was a non-compete in BellSouth for 5 years for Access products. I reasoned that by then there would be enough work on the IP that we would have diverged to a point that if Marconi showed back up it would be with something different.

There were a litany of issues like that and that was not the only one that I had to deal with. From the lack of Lease on the building to issues of Fraudulent Conveyance to the Contract for cabinets, this was a long and hard negotiation. We spent weeks working on it full time. Keith Pratt, Amy Paul, Jeff Rosen, and I were the primary players. We announced the deal on Monday 1/4/04 and I was on a conference call the night before until 2:30AM. The deal was announced while papers were still being faxed for signatures. Other than the deal closure, you have to realize that the 4 of us were out of other corporate work from Halloween until the first of the New Year. Keith even missed a visit from his parents from Ireland. The stress and load added was tremendous. And the FiOS issues were still festering.

 

Jim Sackman
FocalPoint Business Coaching
http://www.jimsackman.focalpointcoaching.com/
We Focus On Your Business – Time, Team, Money, Exit
Business Coaching, Sales Training, Web Marketing, Behavioral Assessments, Financial Analysis
https://www.eventbrite.com/e/sales-training-sales-success-intensity-powered-by-brian-tracy-tickets-8404400789

 

The Endgame at AFC: Execution Failures on BPON

I am going to have to say that this is a hard one for me to write. I look at this as one my own personal failures as I was unable to resolve the conflicts that I am about to outline for you.

But let me start with, after the RFP submission that we were working with SBC folks. We were notified by them that we had won. Verizon was much more of a challenge as the technical team wanted Quantum Bridge/Motorola. The Purchasing and Operations folks wanted us and our relationship with the former GTE folks finally swung things in our favor. Between this and Marconi (upcoming), it was rumored that Alcatel threatened SBC and SBC backed down and gave their FTTP business to Alcatel. As it turned out, there wasn’t any business there so it worked out.

All of this was a HUGE coup. We had defeated the enemy (Alcatel) in hand to hand combat in their home turf. We also beat Motorola, but were less worried about them as they were new to the game.

In response to this, we made NO changes. None! No new people were working on BPON. No change to roadmaps. No new hiring. We were stuck in two arguments: Corey Geiger (VP of Product Management) and Jorge Valdes (VP of Engineering) wanted to hire a new team to do BPON. John Schofield (CEO) and Keith Pratt (CFO) wanted to move people off our ongoing product releases. Neither happened. All that did is I was given charge over the former AccessLAN team to offload Jorge. The second argument was around ONTs. We did not want to be in the business if we didn’t have to be. I saw no way (at the time I was unaware of Vinci) to get other companies to build compatible ONTs in time.

Simply, we left just the 8 people working on BPON from the time that we got the RFP in July 03 until February of 04. That’s it. We changed nothing.

We failed as a Leadership Team to resolve these issues. I took stabs at trying to highlight the problems, but was not sufficiently persuasive. Several of also got distracted by the Marconi activity, but this lies right at our doorstep and mine in particular. Why do I say that last? I was the potential tiebreaker and negotiator. Jeff Rosen and Jack Ermey were outside the meat of these discussions. They were commentators but not in a position to force a resolution.

We had a broken leadership team. This cost all involved $100s of Millions. You would have thought that we should have reached an answer and either answer was better than doing nothing. If you are an Executive in a similar situation, you need to get everyone on the same page. In our case doing so would have meant firing folks or folks quitting. But that is better for the employees, customers and shareholders than what we did. The real crime of it is that we had worked so hard to get to this point just to let our squabbling to get in the way of our success.

Have a great weekend and think about alignment in your organization. Are you at odds with others in some long term conflict? What is the damage that has come out of that? What can you do to fix it? If you need help with it, just let me know! I can talk about this from a very personal angle.

 

Jim Sackman 

FocalPoint Business Coaching
http://www.jimsackman.focalpointcoaching.com/
We Focus On Your Business – Time, Team, Money, Exit
Business Coaching, Sales Training, Web Marketing, Behavioral Assessments, Financial Analysis
https://www.eventbrite.com/e/sales-training-sales-success-intensity-powered-by-brian-tracy-tickets-8404400789