What made the biggest impression during a visit to the nerve center of
in Tel Aviv, Israel, last October was how focused then-CEO Orni Petruschka was on the North American market.
Everything, from Petruschka's business cards to his PowerPoint presentation, was in English. The company had just named Robert Barron, a former Silicon Valley executive with
, its president. And Chromatis made clear that all its sales efforts -- both to distribute its products and to sell itself -- would be aimed at the North American market (Canada's
requires this continental conceit, rather than just referring to the U.S.).
The focus paid off Wednesday, when
, already a minority shareholder, made official the badly kept secret of its plan to buy the entire company for 78 million shares of Lucent stock, worth $4.5 billion at Tuesday's close.
It was obvious seven months ago that Chromatis was going places, which is why I
suggested that readers should "file this one away; if it shows up in headlines as a high-profile takeover, you won't have to ask, 'Who's Chromatis?' " The company makes equipment to supply fiber-optic telecommunications lines in metropolitan areas. Fiber optics have been used for long distance since
Candice Bergen hawked phone calls for
But it has only recently become cost-effective to lay those expensive lines in the relatively shorter distances in and around big cities. That's why Lucent is willing to shell out $4.5 billion of its depressed wampum -- its shares are down 31% from their high -- to buy Chromatis, a company with a beta-stage product.
Chromatis' Barron sounded a bit like Winston Smith in
1984 in Wednesday's conference call, explaining how "delighted" everyone at Chromatis is to be
joining Lucent. Barron, who was elevated to CEO in April, undoubtedly wanted to be the CEO of a publicly traded "next-generation" networking company more than he wanted to join the company that once supplied America with plain old telephones.
Don't cry for him though. It's likely that he got about a 5% stake in the company last November, when the valuation was in the neighborhood of $150 million. I'll do the math for you: That stake would be worth $225 million today, assuming full vesting of all options.
The venture capitalists involved are the ones that really have cleaned up. According to one investor in Chromatis, the company's valuation has increased 30-fold since Chromatis raised $38 million in November. A different venture capitalist, Roland Van der Meer of
in Palo Alto, Calif., supplies the rationale for Chromatis selling now to Lucent: "The potential with a Lucent sales channel is pretty big." Other early investors include
Chase Capital Partners
Access Technology Partners
Jerusalem Venture Partners
Chromatis, of course, is a prerevenue company, though it says it has two firm orders and several more in the works. Lucent says it expects "several hundred million dollars" in revenue from Chromatis next year. If Chromatis generates revenue of only $200 million in 2001, then a forward price-sales ratio of 22.5, while huge, isn't out of line with the prices similar companies have been getting.
Paul Johnson, a networking analyst with
, suggests that the price isn't overly egregious in light of Lucent's size. However, Johnson, who isn't involved in the Lucent-Chromatis transaction, suggests that Lucent's purchase isn't a slam dunk. "To say it will change the competitive landscape is premature."
What there's no doubt about, however, is that it adds fuel to the already white-hot market for optical networking companies.
That Sound Is Ka-Chings, Not Pins Dropping
The next big thing in the optical metro market will be the initial public offering of
, a San Jose, Calif., company that makes fiber-optic equipment. The market has been full of rumors as to why ONI has been delayed by about a week, ranging from tepid market conditions to concerns by the
Securities and Exchange Commission
over ONI's having doled out shares to its customers. (The latter rumor likely was fueled by a
story on the subject by my colleague
.) A third rumor had ONI as eleventh-hour takeover bait by
James J. Cramer
would say, Wrong! ONI priced its IPO at $25 Wednesday night, meaning the shares should begin trading Thursday morning. The intended pricing range had been $21 to $23, indicating that there is strong institutional demand for the 8 million shares ONI is selling. The lead investment bank is, after all,
The $200 million ONI is raising will be far more than twice the $90 million accumulated deficit ONI has rung up in its three years of existence. Never mind. The company supplies the hottest market around. If the overall market doesn't go into a tailspin Thursday, this IPO should soar.
Adam Lashinsky's column appears Tuesdays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at
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