Tellabs Inc, which helps telecommunications carriers manage traffic on their networks, said it agreed to be bought by private equity firm Marlin Equity Partners for $891 million as it struggles against nimbler rivals and a shrinking customer base.
Marlin offered $2.45 per share, a slight premium to Tellabs' Friday close, but a far cry from the $75 the stock hit during the dot-com boom.
The stock was trading around the offer price on Monday morning and with almost 35 million shares changing hands, it was the most actively traded stock on the Nasdaq.
Tellabs has posted a loss for eleven straight quarters as it struggled against competition from Huawei Technology Co Ltd, Cisco Systems Inc and Alcatel-Lucent SA.
It also faced a shrinking customer base due to consolidation among service providers such as Vodafone Plc, AT&T Inc and its largest customer, Verizon Communications.
"That combination was lethal for Tellabs," said activist shareholder Robert Chapman Jr. of Chapman Capital LLC. Chapman Capital owns less than 5 percent of Tellabs shares.
Tellabs said it marketed itself to more than 30 firms, but Chapman believes Tellabs did not have much negotiating leverage given its troubles. Chapman was satisfied with the price offered.
Tellabs on Monday said Michael Birck, its co-founder and second-largest shareholder, supported the deal. Birck stepped down as the company's chairman last year, shortly after Chief Executive Rob Pullen died of cancer.
The company also restructured itself last year to focus on mobile and fiber optic network products as it sought to compete with nimbler rivals cashing in on the demand for streaming video and internet access on smartphones.
"Tellabs has struggled to compete with larger entities that could or would accept losses and nimbler start-ups with fresher platforms. Under private equity, we think Tellabs could focus on re-inventing itself," Raymond James analyst Simon Leopold wrote in a note.
Marlin Equity has said it intends to consolidate the fragmented optical networking sector and has snapped up the optical networking businesses of Nokia Siemens Networks' in December and of Sycamore Networks in January.
"We view Tellabs' business as an ideal opportunity to capitalize on the growth in the telecom network equipment sector," Nick Kaiser, co-founder of Los Angeles-based Marlin said in a statement.
"It's a very smart deal. Marlin is a company that is going to be a winner. They are scavenging around like a vulture and consolidating these small optical businesses and are going to cut massive expenses," Chapman said.
Goldman, Sachs & Co advised Tellabs, while Credit Suisse and Evercore advised Marlin.
(Reporting by Soham Chatterjee and Sruthi Ramakrishnan; Editing by Saumyadeb Chakrabarty and Savio D'Souza)