Zhone Picks up Paradyne

Zhone technologies a company specializing in next-gen service provider equipment is picking up Paradyne Networks a provider of triple play broadband loop carriers and Ethernet access equipment. My take is that this merger is all about scale and being able to compete with the big boys. Zhone has been doing a better job of marketing and promotion than Paradyne so I would say the right company is making the acquisition.

The details are as follows:

Under the terms of the agreement, Zhone will issue 1.0972 shares of Zhone common stock for each outstanding share of Paradyne common stock, and each option, warrant and other security exercisable or convertible into Paradyne common stock will be assumed by Zhone and become exercisable or convertible into Zhone common stock, with appropriate adjustments based on the merger exchange ratio. Based on Zhone's closing price yesterday, the transaction is valued at $3.917 per Paradyne common share. On a fully-diluted basis, the current stockholders of Paradyne will own approximately 36.8% of the combined company and the current stockholders of Zhone will own approximately 63.2% of the combined company. The proposed stock-for-stock transaction is intended to qualify as tax-free to the stockholders of Paradyne.

The acquisition of Paradyne by Zhone is expected to have the following results:

• Provide scale to allow for further growth and more comprehensive sales, service and support.
• Bolster Zhone's position as a leading provider of next generation Broadband Loop Carrier access network solutions.
• Provide service providers with more comprehensive solutions for delivering packet based voice, data and video services as these technologies converge.
• Provide for substantial cost savings from the reduction of operating expenses and is immediately accretive excluding any acquisition related charges.
• Strengthen Zhone's balance sheet with a larger net cash balance.