Tuesday, December 12, 2006

Calls of Note Part 4

- Jefferies comments on Terayon (NASDAQ:TERN) after several industry news sources last night reported that a number of companies are potentially bidding on Terayon. The list of suspected bidders included Cisco, Motorola, Arris, and Harmonic " with news reports suggesting that Cisco and Motorola are the most aggressive bidders. Moreover, the news items suggest that a potential deal price would be in the $225 - $275 million range.

Firm notes investors might remember that Terayon was rumored to have been in play back in Q2/Q3 2005. The shares " at the time " ran to nearly $4.00/share amid rumors that Arris and Harmonic were likely suitors for Terayon. While the firm does not have direct insight into the current situation at Terayon, they believe the current news reports about management selling the business are probably accurate for a number of reasons.

Stated mildly, management's investor relations strategy has been a joke since the organization stopped filing financials after Q2'05. The organization hasn't cared to return investor and/or research analyst calls for some time. While the management team has claimed that its lawyers have prevented them from speaking about the business, the firm knows many others companies that have maintained a dialogue with the Street despite a delinquency in reporting numbers. The shareholder unfriendly stance reinforces the notion that Terayon management's strategy " for some time -- has been to sell the business.

Terayon -- if the speculation is accurate -- would most likely be getting an in-line or modest premium relative to the rest of the industry group. The firm is maintaining their Buy rating and $3.35 price target on the shares.

Notablecalls: Expect to see action in TERN today. Current mkt cap is around $130 mln. Think the stock can trade as high as $2.5 today.

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