Tellabs to Acquire AFC for $1.9 Billion

Telecommunications equipment company Tellabs Inc. agreed Thursday to buy telecom supplier Advanced Fibre Communications Inc., for $1.9 billion in cash and stock. AFC shares surged more than 12% on the news, while Tellabs shares slid more than 13%.

Tellabs executives said the purchase of Petaluma, Calif.-based AFC was spurred by a desire to acquire a broadband provider.

“Marrying the leader in access with the leader in transport positions us to grow with our customers in the industry’s sweet spot of broadband services,” said Krish Prabhu, chief executive and president of Naperville, Ill.-based Tellabs. “This will enable us to help customers simplify networks, offer easier service provisioning and sharpen their competitive edge.”

Under the terms of the transaction, which was approved by both companies’ boards of directors, AFC stockholders will receive 1.55 shares of Tellabs stock and $7 in cash for each AFC share.

At Wednesday’s closing prices, the offer would be worth $21.24, or a nearly 21% premium over AFC’s close of $16.83.

On Nasdaq, AFC shares climbed $2.13 to $18.96, while Tellabs shares fell $1.24 to $7.95.

Upon completion of the transaction, AFC Chairman and CEO John Schofield will become chief operating officer and a director of Tellabs. The Tellabs board will expand to include three AFC directors, including Schofield, increasing membership of Tellabs’ board to 12.

The transaction is subject to certain closing conditions, including regulatory approval and approval by Tellabs’ and AFC’s stockholders. It is expected to close in the second half of 2004, company executives said.

Tellabs has been through major changes in the last few years. The company has slashed jobs, shuttered all plants and outsourced manufacturing to focus on research and development and services.