A need to manage exponential growth in mobile data traffic and emerging consolidation in the space could put Canada's Bridgewater Systems (BWC.TO) into takeover play, with Nokia Siemens Networks [NSN.UL] and Cisco (CSCO.O) topping the list of potential suitors.
Bridgewater would seem a good fit for the network equipment vendors, who are looking to expand their wireless infrastructure solutions to boost their revenue base as carriers plan to roll out next generation networks.
"I think a takeover is a possibility," Jennifer Law, vice president, Canadian Equities at CIBC Global Asset Management Inc told Reuters.
"But it will be price dependant."
Bridgewater stock, which has risen about 230 percent in 2009, is currently trading at about C$8 on the Toronto Stock Exchange.
"Precedent transactions suggest possible takeout valuations at C$15-C$17 a share," RBC Capital Markets analyst Mike Abramsky wrote in a note to clients.
The company's solutions help telecom operators manage mobile traffic that has grown immensely with the popularity of smartphones like Apple's (AAPL.O) iPhone.
Value-added services like mobile Internet and video downloads help wireless carriers raise their average revenue per user (ARPU) as revenue from voice calls decline.
"Bridgewater has a good platform suite... one of the best among its competitors and that is one of the reasons that they have been able to get customers like Verizon Wireless and Clearwire (CLWR.O) in North America," analyst Sameet Kanade of M Partners said.
DEAL RATIONALE
"We'd expect Cisco to take a hard look at Bridgewater to help cement its position at Verizon with the Starent acquisition," analyst Kris Thompson of National Bank Financial wrote in a note to clients.
In October, Cisco announced a $2.9 billion deal to acquire Bridgewater partner and wireless gear maker Starent Networks Corp. (STAR.O), signaling rising consolidation in the mobile infrastructure software market.
Thompson, who rates Bridgewater "outperform," has also been saying for many months that Bridgewater would also be an acquisition target for another Bridgewater partner, Nokia Siemens, a joint venture of Nokia (NOK1V.HE) and Siemens (SIEGn.DE).
The move could help Nokia Siemens sell its base-station radios for Verizon's upcoming long-term evolution (LTE) network, a high-speed wireless technology intended to replace the current technology used by most cellphone networks.
Ottawa-based Bridgewater provides its key WideSpan product to Verizon Wireless, a joint venture of Vodafone Group Plc (VOD.L) and Verizon Communications Inc (VZ.N), and the largest U.S. wireless carrier.
Cisco, Nokia Siemens and Bridgewater all declined to comment.
OTHER POSSIBLE SUITORS
Kanade said other possible suitors could include Bridgewater's channel partners, who may look to combine their existing strengths with Bridgewater's, or any of its key customers who could bid for it to gain a competitive advantage.
Deepak Chopra, an analyst with Genuity Capital Markets, said other networking companies interested in Bridgewater may include Juniper Networks (JNPR.N) and Alcatel-Lucent (ALUA.PA).
On the software side, companies like Oracle (ORCL.O) and Hewlett-Packard (HPQ.N) could be interested in Bridgewater, Chopra said.
A company like HP, which has a channel partnership with Bridgewater and also competes with the Canadian company in some areas, could target Bridgewater to address shortcomings in its own telecom infrastructure software business.
Still, analyst Thompson says Cisco would have an edge over rivals in any takeover battle.
"The dilemma here is that Cisco has lots of cash, which may prevent Nokia Siemens from bidding for Bridgewater," Thompson said.
"Cisco can out pay anybody."
Last month, Cisco, one of the most cash-rich technology companies, raised $5 billion in debt, indicating that it may be gearing up for more acquisitions.
"May be Bridgewater falls in (Cisco's) target companies," analyst Kanade said.
"But if they do go after Bridgewater, I do expect there will be a bidding war."
source:reuters