Proxim, Western Multiplex Agree to Merge
Wireless networking equipment makers Proxim, Inc. and Western Multiplex Corp. announced on Thursday that they have agreed to merge in a deal worth approximately $289 million.
Described as a merger of equals, in which Proxim and Western Multiplex stockholders will each own 50 percent of the combined company, the new company will keep the Proxim name, and trade under the ticker symbol PROX. Both companies are based in Sunnyvale, Calif.
While both companies sell to the enterprise market, including building-to-building networking products, the merger combines Proxims strengths in original equipment manufacturer and U.S. distribution channels with Western Multiplexs strengths in the service provider and enterprise sales, said Jonathan Zakin, Chairman and CEO of Western Multiplex.
David King, Chairman and CEO of Proxim described the merger in written remarks as one that would expand the "breadth of our wireless expertise and increase our economies of scale. Our goal is to utilize our development assets to provide integrated last mile access and in-building distribution for the enterprise and residential markets."
In an interview with eWeek, Zakin said the deal provides substantial cost savings, mostly in consolidation of facilities, as well as "sales synergies in the company through leveraging customer base and developing products that will begin to integrate in-building distribution with the wide-area network."
"I think youll see that having a combination of leading in-building, both enterprise- and home-focused company like Proxim with a company thats really becoming a leader in campus [corporate] networking, which is what Multiplex, with Tsunami and backhaul solutions with its Lynx products is, it really is a terrific fit from a product perspective," added King.
"Were both becoming leading players in selling wireless networking solutions to corporate IT managers, who are both looking at wireless LAN for in-building distribution of data as well as finding ways to use wireless as a much less expensive alternative to lease lines and wire lines and fiber solutions for outdoor networking," King said.
Zakin said two major objectives and market opportunities for the new company would be in integrating wireless 802.11a products into wireless home point-to-multipoint products to create a neighborhood access controller, which would bring down the cost of data delivery and open opportunities in the residential markets; and integrating in-building distribution, or the local area networking capability with the wide area capability, which would allow ISPs and other carriers to provide integrated capability from the device, such as a laptop or PC in the home or office, back to the "network cloud" in one seamless connection, reducing costs encountered by trying to integrate different brand products.
As far as the enterprise is concerned, Zakin said he sees additional opportunities in "integrating the campus in-building distribution of data through the local area network with campus bridging through our Tsumani product line, or providing low-cost campus connectivity between buildings, with the [802.11a or 802.11b] standard, and backhauling that with our higher-speed Tsunami products," said Zakin.
Zakin will retain the title of Chairman and Chief Executive Officer of the new company. King will become President and Chief Operating Officer.
Following the close of the transaction, which is subject to federal regulatory approval and both companies stockholder approval, Keith Glover, Proxims Chief Financial Officer, will continue as CFO of the new company. Amir Zoufonoun, Western Multiplex President and Chief Operating Officer, will become Executive Vice President, Technology.
The company will have approximately 485 total employees, including 174 research and development staff.
As to layoffs, there is some overlap in top management roles and possibly administrative functions, Zakin told eWeek. But, "generally in the sales-marketing-R&D area we dont expect anything substantial, if at all," he said.
Analyst Dale Pfau, of CIBC World Markets downgraded Western Multiplex stock on the news. "They tried talking this morning about how they are going to cross sell, they are going to go after point to multipoint, residential gateways, and we think that is just absolutely a waste of shareholder value," said Pfau.
As far as Western Multiplexs strengths in selling to the enterprise and service providers, Pfau said, "Its going to dilute your efforts to try and move in that direction."
"We like Western Multiplexs core business of spread spectrum high capacity, point to point radios, we think that has a good future, we do not believe in the future of Proxim and the wireless LAN market, we think they are going to suffer from considerable competitive pressures" said Pfau.
The company CEOs however, discounted the charge, noting that the deal makes sense even just on efficiencies alone. "Were definitely not basing the value of this transaction on that [residential] marketplace," said Zakin. "The economics of the transaction work with no sales synergies at all, just through cost savings. We think the sales synergies in general, of which the residential market is just one, are just upside potential."
In trading Thursday afternoon, Western Multiplex was down 45 cents to 3.75, or ten percent, while Proxim was down $1.73 to $6.99 or nearly twenty percent.
The new companys combined market capitalization would be approximately $550 million based on January 16 market prices. The merger is expected to close during the second quarter of 2002.