Tellabs dismounts auction block, shakes up management

At the same time, Naperville, Ill.-based Tellabs said it would commit an additional $600 million to repurchasing its shares, which have fallen sharply in recent months and are now trading close to a 52-week low.

Coming on top of an existing share buyback program, which still has $176 million remaining, the new repurchase means that more than half of the company's $1.4 billion of cash will now be committed to stock buybacks.

Analysts said this was a clear sign that Tellabs is shifting away from a strategy of finding a buyer and redoubling efforts to boost its value as a standalone company.

"The moves seem to indicate that the board is actively addressing shareholder value, although it also suggests there is little hope of selling the company in the near term," Brian Coyne, an analyst at Friedman Billings Ramsey Group Inc., wrote in a research note.

UBS Investment Research analyst Nikos Theodosopoulos offered a similar sentiment, saying that Thursday's news "likely reduces the chances of an imminent acquisition of the company."

In the past few years, Tellabs has gone from a company working to rebuild itself in the wake of the telecom bust to an active acquirer of smaller telecom startups that helped revive its business to a company that is once again struggling in the wake of competition from much larger players.

Last month, Tellabs reported that its revenue fell to $458 million from $523 million in the year-ago quarter, while net income plummeted to $4 million from $59 million.

Argus Research Group analyst Jim Kelleher said that as more time passed with Tellabs unable to find a buyer, it grew less attractive as an acquisition target.

"Their optical transport equipment business had for a long time been holding the company together, but that started to crater earlier this year, and it fell apart in the third quarter," Kelleher said.

While Tellabs never explicitly said it was seeking a buyer, it behaved in a manner typical of companies eager to be bought, fanning acquisition rumors when they did surface rather than swiftly dismissing them.

Over the summer, amid the latest round of takeover talk, Prabhu gave an interview to the Chicago Sun-Times in which he insisted: "We are a good asset, no doubt."

But even when it was performing strongly, Tellabs found itself in a difficult position: too small to compete with some of the world's largest gear makers like Motorola Inc. or LM Ericsson, but almost too big for those companies to easily swallow.

Indeed, even at its current depressed share price, Tellabs still has a market capitalization of almost $3.5 billion.

Kelleher said that Tellabs was a more attractive takeover target a year or two ago when it was operating at peak performance and its rivals were also healthier.

Today, he said, would-be buyers such as Motorola or Ericsson are struggling with their own internal operations and seem to know Tellabs will only get cheaper over time.

"Now they can wait, until the company gets really sick," he said.

Kelleher predicted that the new CEO Tellabs' board selects to succeed Prabhu will most likely be a dealmaker who will either try to make more acquisitions, or will "dress the company up for an asset sale."