High-flying CEOs Find Life After Acquisitions

Telecommunications, June, 2000 by Patrick Flanagan

NEW YORK--When a multibillion-dollar telecom supplier swallows up a smaller high-tech company, the CEO usually has two conflicting feelings: security, having just made a great deal of money, and uselessness because the challenges of leadership are turned over to the acquirer. Most, however, find there is a life after acquisition.

Two who have successfully done this are Mory Ejabat, former CEO of Ascend Communications, whose company was acquired last year by Lucent, and Bernard Daines, who has been through two acquisitions--Alcatel and Cisco.

The divorces from their former companies were not similar. Ejabat let Lucent know up front that he would not stay on after the acquisition other than for a short transition period. "I can't work for a company, only for a board of directors," he recalls telling them. Also, Ascend had grown to 4000 employees over 10 years, which left him feeling a bit alone at the top. The acquisition itself was "a double-edged sword" in that Ejabat lost his very visible position in the industry, but also "it was a chapter to be dosed and was put in good hands, while I was given an opportunity to again become a start-up."

His new company benefited greatly from his reputation and track record. Zhone Technologies was launched in September 1999 with an unprecedented $500 million in funding from prominent venture capital firms. Exactly what Zhone is planning is a bit of a mystery. "We will deliver the rest of the next-gen network in short order, including voice, data, video and the Internet," Ejabat claims. A due to where Zhone is heading comes from a $240-million deal for Premisys Communications, which provides technology to interconnect digital and voice networks. Jeanette Symons, Zhone's chief technology officer and Ascend cofounder, slipped into Silicon Valley speak when asked about technology, saying "we're creating a cool product and will be selling to the Ciscos and Lucents of the world."

Daines has two corporate divorces under his belt. The first was in 1994 from Cisco, when it acquired Grand Junction for $350 million. He was ready to move ahead, founding Packet Engines that same year. Three years later Alcatel scooped it up for $315 million. He remembers warmly his parting after the Cisco acquisition. "They know how to properly do an acquisition and make the transition smooth," he said. Alcatel was quite another story. "They made a lot of promises and kept none, particularly about Packet Engines staying independent and not sending over hatchet men from France," he said. Daines publicly said he would stay after the acquisition and was quoted in the press announcement as being "excited to be a part of the Alcatel group." Daines left after two months and is pursuing a lawsuit against Alcatel. His new operation is World Wide Packets. The technology of choice is 10 Gigabit Ethernet, which Daines describes as the "ideal aggregation technology for home and small business" and which he is pushing h eavily as a founder of the 10 Gigabit Ethernet Alliance. "Anyplace with a high concentration of data is a candidate for gigabit," Daines said. World Wide Packets, like Zhone, does not yet have a product, although Daines said manufacturing will begin by the end of this year or early 2001.

One quirk that Ejabat and Daines share is a dislike for Silicon Valley Ejabat located Zhone in Oakland, Calif., and is building a 300,000-square-foot campus adjacent to its current offices designed for 1500 employees, R&D and manufacturing. He plans heavy community involvement, and his new building will become a centerpiece for attracting high-tech companies to Oakland. Daines made it clear that his native Spokane is far superior to Silicon Valley by moving Packet Engines there from California a year after its founding. He's buying a 10,000-square-foot building that he plans to triple in size and eventually will acquire another 100,000 square feet for manufacturing.

Will Ejabat and Daines make it big again? Telecom analysts hardly have these new companies on the radar screen. Zhone is getting some attention because of its incredible financing. Jim Parmelee of Credit Suisse First Boston, which arranged financing, put it simply "You don't bet against Mory." If past successes are any indication, the same holds true for Daines.