Allot, Radware Conducted Preliminary Contacts Over Merger

The companies have complementary technologies and each is partly owned by members of the Zisapel family.

Bloomberg

Allot Communications and Radware, two Israeli communications technology companies, have been engaged in preliminary talks over a possible merger, TheMarker has learned.

The negotiations did not reached the official stage and both companies declined to comment on any talks.

But the two companies are natural candidates for a merger as Allot has suffered a decline in earnings and its share price while Radware is seeking to grow through acquisitions. Both offer products for optimizing communications networks. Allot focuses on mobile communications while Radware concentrates mainly on the internet and corporate computer networks.

Moreover, the two publicly traded companies have a connection to the Zispael family, veteran denizens of the Israel high-tech scene and serial entrepreneurs. Radware’s CEO is Roy Zisapel and Yehuda Zisapel and members of his family have a 15% stake. Allot is 8%-owned by Yehuda’s brother Zohar.

Allot, based in the Tel Aviv suburb of Hod Hasharon, has been hit by a decline in capital spending by the world’s telecommunications operators. In the developed world, networks have sufficient capacity and they need ways to maximize customer revenues more than they need optimization tools.

Recognizing that, over the past two years Allot has been developing new growth engines in the form of tools that analyze network usage and provide security features, giving telecommunications operators insights into how their subscribers are using bandwidth and what kind of applications they prefer.

Nevertheless, the company lost $24 million in the last four quarters and its share price has plunged 60%, leaving it with a market capitalization of just $170 million. The extent of the company’s problems are such that with $120 million of cash on its books, investors are valuing its $100 million a year business at just $50 million.

Allot shares were up 4.3% in late trading local time in New York yesterday, at $5.08.

Tel Aviv-based Radware has also been through a rough patch. Last year, revenues fell 2% to $216 million and in the first quarter of this year they were down 15% year on year. Analysts are forecasting no growth for the company this year, which has caused its shares to drop 50% in the past year to a market cap of $525 million.

Radware shares were up 0.1% at $11.90 in late New York trading yesterday.

One of the company’s problems has been its inability to close contract swith leading telecommunications companies in the United States, such as Verizon and AT&T, because operators have been cutting back on investment. Radware has tried to overcome that by beefing up its American marketing operations.

Radware has not been a big buyer of companies. Its acquisitions have been small and the last one it made was in 2013. But the appointment of Doron Abramovitch as chief financial officer last year was taken by analysts as a sign the company would become more aggressive.