Lightreading is reporting that telecom equipment company Nortel (NT) may be close to buying Tellabs (TLAB). NT may have already made an offer of $14 to $15. According to Lightreading, "Tellabs is seen as a solid technical fit for Nortel, according to sources close to both companies,"

While it may appear like a good fit, the price would be too hight. TLAB has a market cap of $4.5 billion. The price NT would pay probably moves that up to $6 billion. And, that is to buy a company which did $534 million last quarter with an operating profit of $28 million. So, the price would be almost three times annual revenue.

Nortel trades at about 70% of its annual revenue base of $11.5 billion.

Tellabs would get almost 45% of the company for bringing in 20% of the revenue.

Douglas A. McIntyre