Tellabs Inc., the Naperville-based the telephone-network equipment manufacturer that lost its top executive to cancer this year, will actively repurchase as much as $224.6 million worth of its stock to win back shareholders' favor.
Tellabs gained as much as 5.5 percent in intraday trading today after the company said in a statement it would "actively" repurchase the stock. The shares were up 2.2 percent to $2.78 at 12:52 p.m. in New York, recovering after hitting a 19-year low last week. The company last month forecast a drop of as much as 24 percent in fourth-quarter sales compared to a year earlier, which would make it the eighth consecutive quarter of revenue declines.
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Investors including Dialectic Capital Management LLC and Third Avenue Management LLC are seeking a greater say in company decisions after the revenue slide and the diagnosis of cancer for two top executives. At its current price, Tellabs is trading only 9 percent above its level of cash on hand, according to Simon Leopold, an analyst with Raymond James & Associates Inc.
"Tellabs has had a lack of catalysts lately," said Leopold, who is based in New York. "The resumption of buybacks demonstrates confidence."
Leopold has a neutral rating on Tellabs, which had $942 million in cash and equivalents at the end of last quarter.
The company, under former Chief Executive Officer Rob Pullen, attempted to shift from slower-selling telephone network switches to more popular equipment for wireless network operators. Pullen died of cancer in July. In August, Chairman Mike Birck, a co-founder, said he was diagnosed with leukemia and said he wouldn't seek re-election to the board.
The leadership setbacks follow the loss of a big piece of sales to AT&T Inc. and come amid weak demand in Europe, said Sam Greenholtz, an independent industry strategist in Westminster, Maryland.
"They've got no leadership role in the market," said Greenholtz in a phone interview.
Third Avenue has increased its stake in Tellabs to 9.6 percent, saying in a Nov. 7 filing that it may get involved with decisions on topics like strategic alternatives and board composition. Dialectic, which has a stake of about 3 percent according to data compiled by Bloomberg, struck an agreement in April to appoint two members to Tellabs's board.
Tellabs has hopes for growing demand in Europe, where wireless carriers look to speed up networks to accommodate smartphones, acting Chief Executive Officer Dan Kelly said during a presentation to investors last week.
Kelly also reiterated that operating costs would increase in the fourth quarter by about $10 million, or about 10 percent above third-quarter levels, mostly because of an increase in research.
"We are investing for growth, and we are going to grow," said Kelly. "Our customers are still very engaged."
The move to spend more money on research as sales decline prompted two investors of the 15 in attendance at the conference to ask about the company's stated goal to reduce costs and focus on profitability.
"We recognize that we need to be continually listening to our large shareholders and evaluating our options," said Kelly in an interview after his presentation.