3Com, Sonus And Tellabs: Possible Nortel Targets

Includes: COMS, NT, RBBN, TLAB
by: FP Trading Desk

Nortel Networks Corp. (NT) may be looking at acquiring any number of companies, including networking products and solutions company 3Com (COMS), as it tries to catch up to rivals in the telecom equipment consolidation game. Given its apparent failure to buy Avaya (NYSE:AV), UBS analyst Nikos Theodosopoulos thinks Nortel could be considering acquisitions aimed at speeding up growth or increasing its scale in areas like Carrier VoIP, IPTV and Enterprise.

Since putting Mike Zafirovski at the helm, Nortel shares are down roughly 30%, the analyst noted, adding that acquisitions may be the CEO’s approach to try to lift a sagging stock price. Given the constraints posed by Nortel’s market cap and debt, as well as the likelihood that a deal would probably be funded primarily by cash, Mr. Theodosopoulos thinks potential takeover targets would likely have market caps of less than US3-billion.

Other than 3Com Corp., the analyst sees Sonus Networks Inc. (SONS) and Tellabs Inc. (NASDAQ:TLAB) as potential targets. Foundry Networks Inc. (FDRY) and F5 Networks Inc. (NASDAQ:FFIV) also make the list, although Mr. Theodosopoulos thinks the chances of Nortel doing a deal with them is low.

He continues to have a “neutral” rating on Nortel shares and a US$26 price target.