ECI-Orckit Merger Possible but Unlikely
By Avishai Ovadya
Tuesday , Oct 3, 2000 Sun-Thu at 18:00 (GMT+3)
Headlines
Although it is only a matter of price, we have all the reasons in the world to believe that despite the headlines in "Ma'ariv", stating that ECI is negotiating to acquire a controlling interest in Orckit, the deal will not take place. It is simply the last thing that ECI general manager Doron Inbar needs right now.
Not that it is impossible. Despite everything, there is an overlap in the business of Orckit and one of ECI's divisions (ECI is scheduled to split into separate companies, each of which will be traded on Wall Street). Both develop and manufacture ASDL modems, which enable broadband data transmission on existing telephony networks. However, at least for the moment, ECI's management is concentrating on splitting the company into five separate companies, and it is hard to imagine that they will risk adding another factor to the already very complex equation. Moreover, behind the split lies the assumption of added value, while Orckit, with its pile of losses, crisis of faith with its investors and not especially heartwarming future financial reports, would not contribute much to ECI.
Furthermore, both companies are competing head to head in the same markets, mainly Europe, for orders from the giant communications companies. ECI, at least recently, is beating Orckit hands down, most notably with its largest customer, Deutsche Telekom, which favors ECI's products over Orckit's. So why does ECI need to buy a loser?
True, Orckit is not exactly a loser. Although Orckit is losing customers and sales are dropping, many analysts and technology people agree that Orckit is the technology leader in the field, and its last crisis is attributed to the company's changing its business approach and not to the quality of its products.
Orckit deliberately reduced its sales and avoided competing for major European tenders, mainly because winning them would incur heavy losses. It may sound absurd, but selling meant losing more, which Orckit's owners and managers could not live with. On the other hand, ECI's management has at least temporary credit to seize market share at the expense of profits. The big question is until when.
In short, Orckit, it seems, is uninterested in ECI and is unlikely to provide it any added value. Inbar said so himself, using other words, two months ago, when he responded to rumors regarding a merger between the two. ECI spokesman said today, "ECI does not respond to rumors." Orckit also denies any contacts regarding a merger, "There is not, and has never been, any negotiations with ECI." But everything has its price, and from this perspective, Orckit, with a company value of $180 million after dropping over 80% in the past few months following a profit warning and the subsequent crisis in faith, is a candidate for consumption. ECI, it seems, will not be in line for the meal, at least not until its complicated splitting is completed. However, we should not be surprised if very soon a technology or marketing cooperation agreement is signed between them.
Published by Israel's Business Arena on 3 October 2000
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