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Redback Networks Is Acquiring
Siara Systems in $4.3 Billion Deal
By SCOTT THURM
Staff Reporter of THE WALL STREET JOURNAL
The makers of Internet-switching equipment are looking more like
dot-coms every day.
The latest example: Redback Networks Inc., which has soared to
a $6 billion market value in six months as a public company,
announced Monday that it is acquiring closely held Siara Systems
Inc. (www.siara.com), which hasn't completed its first product, for
$4.3 billion in stock.
The deal, which the companies describe as a merger, will
combine two promising young gear manufacturers that hope to
play a key role in a new generation of telecommunications
networks, but that now have scant revenues and no profits. By
combining, the two companies hope they will have greater heft to
take on equipment titans such as Lucent Technologies Inc. and
Cisco Systems Inc.
Redback, Sunnyvale, Calif., makes equipment to manage
computer traffic on high-speed digital-subscriber lines. Its shares
have leaped more than 11-fold since its IPO. In abbreviated
trading on the Nasdaq Stock Market Friday, Redback closed at
$136.50, down $4.0625. For the first nine months, Redback
reported a loss of $9.2 million on sales of $38.2 million.
Siara, in neighboring Mountain View, Calif., was formed in June
1998 and has yet to announce what its products will be. In general
terms, the company has said it is working on equipment to help
telecommunications companies more efficiently start, stop and
manage Internet services, such as security- and remote-software
programs. Unlike Redback, whose equipment goes into the
offices of telecommunications companies, at least some of
Siara's gear is expected to be housed at large businesses and
office buildings.
"This expands the market we can address by 10-fold," said
Dennis Barsema, Redback's chief executive officer, who will
retain that title. He said market analysts estimate Redback's
traditional market at $2 billion in 2001. Adding Siara will allow
Redback to pursue a $20 billion market the same year, he said.
Siara was considered a hot start-up because it brought together
engineers with telecommunications expertise and topflight
semiconductor designers, most of whom formerly worked at
Advanced Micro Devices, also in Sunnyvale. This team is
developing chips to process billions of bits of computer traffic a
second. Former AMD President Atiq Raza joined Siara's board
in August. Qwest Communications International Inc., Denver, last
week said it would work with Siara in designing its network.
Siara is "putting a tremendous amount of processing power at
the edge" of networks so that network operators such as Qwest
can offer more services, said Vivek Ragavan, Siara's chief
executive. Mr. Ragavan will become president and chief
operating officer of Redback.
Siara actually began life as a portion of what became Cerent
Corp., which Cisco acquired earlier this month for $7.2 billion.
The Siara and Cerent teams parted in June 1998, when it
became apparent they were pursuing different strategies.
Redback said it will issue 31.3 million shares for all the shares of
Siara. Based on Friday's price, the combined company will have
a market value of $11.2 billion. The companies said Redback
shareholders will own 62% of the merged company, and Siara
shareholders 38%.
Siara's backers include the venture-capital firms Kleiner Perkins
Caufield & Byers and Norwest Capital, and ADC
Telecommunications Inc. Their precise equity stakes haven't
been disclosed, but those firms, and Siara's 180 employees,
clearly stand to reap a huge bonanza. Siara's most recent funding
round, in May, totaled only $25 million.
The deal is the latest step in a year-long escalation of values for
makers of Internet-switching gear. The trend started in the spring,
with several skyrocketing IPOs, including Redback. Then came
the June IPO of Juniper Networks Inc., which now is valued at
more than $15 billion, and Cisco's acquisition of Cerent,
announced in late August. In October, Sycamore Networks Inc.
soared to a value of $14 billion on its first day of trading.
Sycamore, which has recorded less than $31 million in sales in
its history, is now valued at almost $19 billion. |
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