Daily Archives: October 8, 2009

Alcatel-Lucent CEO Resists M&A Tide

As the pieces of insolvent Nortel Networks are auctioned off one by one and a wave of telecommunications-equipment consolidation threatens to wash ashore, Alcatel-Lucent CEO Ben Verwaayen swims against the tide.

Said Verwaayen:

“I’ve said many times before, M&A is not the way out of our problems. We need to fix our own stuff.”

Alcatel-Lucent’s industry counterparts might take to mergers like 18th-century aristocrats took to the waters, but Verwaayen doesn’t believe that consolidation is a panacea.

Considering the genealogy and history of his company, one can’t fault Verwaayen for his stance. Alcatel bungled acquisition after acquisition, and Lucent fared nearly as badly at the mergers game. Then Alcatel and Lucent came together in a poorly conceived and horribly executed merger that haunts the company to this day.

It’s no wonder Verwaayen doesn’t see M&A activity as a solution to what ails Alcatel-Lucent. Since joining the company a year ago, his task has been to get the rusted corporate hulk out of dry-dock and back on the high seas.

It’s not an easy task: Alcatel-Lucent hasn’t managed a quarterly profit since it was formed through merger three years ago.

The company’s shares are up this year, however, demonstrating that hope springs eternal in the minds of optimistic investors. Some market analysts are even calling for an upswing in telecommunications spending next year.

Says Verwaayen:

“In my second year, I want to get Alcatel-Lucent used to winning again. By the third year, we will be a normal company.”

He’s setting the bar pretty high.

Strategic Alliance between McAfee and Verizon Business Aims for the Clouds

The phrase “strategic alliance” is abused, cheapened, and trivialized through rampant overuse in the information-technology industry. Occasionally, however, a strategic alliance warrants the designation.

Take, for example, the strategic alliance announced today by McAfee and Verizon Business. This is an extensive, far-ranging partnership, bringing together each company’s respective strengths today and extending them ambitiously into the future.

The highlight of the partnership is the companies’ commitment to jointly develop and market a suite of next-generation, cloud-based, managed-security solutions for enterprise and government customers. If this initiative is executed well and brought to fruition, it has the potential not only of being lucrative for McAfee and Verizon, but also of providing a secure foundation for the widespread adoption and proliferation of enterprise-class cloud computing.

But the announcement wasn’t just about the future. A range of initiatives and services are available immediately.

As of now, for example, Verizon Business will offer its customers McAfee’s full range of enterprise security solutions. The McAfee offerings will broaden the choice of security solutions available to Verizon Business’ customers while helping McAfee expand its distribution channel. That’s a double-edged sword, of course, because there is no question Verizon Business will compete against, and often overwhelm, preexisting McAfee channel partners.

Verizon Business also will offer McAfee’s PCI (Payment Card Industry) compliance services to banks and other organizations that support merchants that handle fewer than 20,000 e-commerce transactions or up to one million credit card transactions annually. It’s potentially a big market, encompassing a group of retailers that accounts for nearly a third of all credit-card transactions.

McAfee and its customers also will gain access to Verizon Business’ network of 1,200 security professionals, providing a lot of feet on the street capable of designing, implementing, and integrating security solutions.

Another interesting aspect to the relationship is Verizon Business’ commitment to provide data-center outsourcing services to McAfee. Verizon Business will help McAfee consolidate its data centers, enabling the latter to improve round-the-clock management of its web-hosting operations and set the stage for rollout of cloud-based security services.

Speaking of which, the cloud-based security services will be managed and operated by Verizon Business. The services will include McAfee security technologies such as firewalls, intrusion prevention services, anti-malware, content control, and SSL VPNs.

A McAfee spokesperson said some of the cloud-based security services are being used now by a small number of customers, but that wider availability is scheduled for mid 2010. That availability will span North America, South America, Europe, and the Asia-Pacific region.

From top to bottom, the partnership is a major breakthrough for McAfee. It will result in some friction with channel partners, but the upside for McAfee more than compensates for the diplomatic overtime its field representatives will have to endure.

It’s a good deal for Verizon Business, too, enabling it to extend its push into managed services. The partnership also allows Verizon to establish a credible security foundation for cloud-based application services, which have understandable appeal to service providers with prodigious hosting facilities.

The partnership stands as a testament to the technology and thought leadership McAfee has established in framing its vision for cloud security. It got out ahead of the curve — and ahead of its competitors — in staking those claims.

Having that edge in a new and potentially lucrative market will serve it well. The consumer anti-malware franchises that Symantec and McAfee built are under increasing attack from free products, including Microsoft Security Essentials (MSE), which is more than good enough to eat into the market share and revenue of the incumbents, especially in a new economic reality that favors parsimony.

McAfee has adapted well, changing its emphasis and apportioning its resources accordingly. The company has more than held its own against Symantec in enterprise markets, and it has taken a leadership position in cloud security. The strategic partnership with Verizon Business represents strong validation that McAfee is on the right course.

VC Funds Down; Late-Stage Funds Take Biggest Hit

Dow Jones Private Equity Analyst confirms what we all suspect: Venture-capital funds are down sharply in number and in amounts raised.

Venture capital funds raised $3.5 billion in 26 funds in the third quarter of 2009, a 51% decline from the $7.2 billion raised in the same quarter last year, according to Dow Jones Private Equity Analyst. In total, venture-capital firms raised $8.0 billion across 83 funds thus far in 2009, less than half of the $18.9 billion raised by 141 funds in the same nine-month period last year.

As investors realize that difficult economic conditions will persist for the foreseeable future, they’re taking particular care to keep their money out of late-stage venture funds, which raised $564 million through the first three quarters of 2009, a vertiginous decrease from the $3 billion raised in the same period last year.

The situation is better, but not great, for early stage funds, which raised $1.6 billion across 18 funds in the latest quarter, down from $2.9 billion raised by 17 funds in the third quarter last year.

Multi-stage firms raised $1.8 billion across seven funds, down from $2.6 billion raised by 17 funds in the same quarter last year.

Not surprisingly, big VC firms fronted by marquee names are doing relatively well. Those players include Khosla Ventures, with its focus on cleantech; Domain Associates, with its life-sciences orientation; Matrix Partners; and newcomer Andreessen Horowitz, which, of course, has celebrity entrepreneur Mark Andreessen to wave its banner.

Toward the end of August, Benchmark Capital’s Bill Gurley explained why the venture-capital industry is being downsized and reconfigured. The results of those industry dynamics are apparent in the latest numbers from Dow Jones.

Displeased Tandberg Shareholders Face Hobson’s Choice on Cisco Deal

The deal is unlikely to be derailed because of it, but not all Tandberg shareholders are enamored of the $3-billion all-cash offer Cisco made for the Norwegian videoconferencing-systems company.

In a Financial Times column earlier this week, a Tandberg shareholder noted that Polycom, Tandberg’s videoconferencing-systems rival, was trading at an equivalent EBITDA multiple. He or she reasoned that a takeover-bid premium should apply to Tandberg’s value.

The anonymous shareholder also argued that Cisco’s acquisition offer did not account for the valuable synergies that will flow from the merger. Said the deal critic:

“Tandberg claimed the deal would lead to USD 10bn of revenues in 10 years which is twice the amount the company would achieve on a standalone basis.”

Finally, and potentially disconcertingly for Cisco, the shareholder pointed out that more than 10 percent of the company’s shares have traded above the offer price since the deal was announced. Not unreasonably, the anonymous shareholder contends, new buyers of Tandberg paper will be reluctant to vote in favor of Cisco’s offer. The Cisco acquisition is conditional on an acceptance rate of 90 percent of shares.

Even with a degree of restiveness in the ranks of Tandberg shareholders, Cisco has reason to remain confident the deal will go through. That’s because, as mentioned in the Financial Times piece and elsewhere, Tandberg is unlikely to receive a better offer.

Other potential acquirers, such as Microsoft and HP, are focused elsewhere at the moment. Silver Lake Partners, the private-equity firm that had been in abortive discussions to acquire Tandberg last year, is no longer in the picture, choosing to participate in the contentious Skype deal instead.

Unimpressed with the Cisco offer, dissident Tandberg shareholders have no recourse to other options. It’s a case of Hobson’s choice.

Ciena’s Initial Nortel Bid Likely to Prevail

It appears Ciena’s stalking-horse bid for Nortel’s Metro Ethernet Networks (MEN) business could go unchallenged.

As Andrew Willis points out in today’s online edition of the Globe and Mail, the Ciena bid doesn’t exactly represent the ideal outcome preferred by Nortel’s creditors, who have favored all-cash transactions in the auction sales of Nortel’s wireless and enterprise businesses.

Nonetheless, Ciena’s bid of $521-million of cash and shares appears good enough to satisfy Nortel’s creditors and to discourage rival bidders from crashing the party. The simple fact that Nortel’s creditors accepted a stalking-horse bid that contained shares and cash is flagged by Willis as a strong indication that the Ciena offer will prevail.