Susquehanna Financial Group analyst Joseph Chiasson is either really insightful or a really good speculator after issuing a research report that suggest Nortel will spend as much as $550-million to acquired Force 10 Networks Inc. Why Force 10? Apparently, Chiasson, who cites “industry sources” believes Nortel wants Force 10’s high-speed Ethernet switches and routers so it can compete in the enterprise market against Cisco. Last year, Force 10 had revenue of $70-million, and it could post $120-million of sales this year. A few questions: does Nortel has the willingness to spend 25% of its cash on an acquisition? If not, can it raise money through an equity offering – something that seems unlikely given the class-action lawsuit settlement is already causing huge dilution. Does an acquisition of this size fit into CEO Mike Zafirovski’s modus operandi? Does Nortel really want to establish a foothold in the router market given it acquired Tasman Networks last year for $99-million? Update: LightReading has a story on the Nortel-Force 10 rumours, which includes the fact Force 10 just closed a $50-million private equity round that gives it a post-funding valuation of $455-million. Apparently, Force 10 was poised to do an IPO this year but back off due to concerns about Sarbannes-Oxley requirements.
Will The Force (10) Be with Nortel?