Zhone Closes Cash, Stock Purchase of City Land

Telecommunication startup Zhone Technologies has finalized a cash and stock deal with the city of Oakland for 15 acres between the Coliseum Bay Area Rapid Transit train station and the Oakland International Airport.

Zhone gave the city 100,000 stock warrants as well as $6 million in cash for the land on which it is now building a 300,000-sf headquarters building. The warrants give Oakland options to buy Zhone stock at $4 per share should the company go public.

City officials estimate the land’s market value at about $7.9 million. That means the stocks must reach nearly $20 per share for the city to get a fair price on the deal. Oakland bought the land for $9/sf several years ago, and appraisers recently pegged its value at $12/sf.

It’s not your typical deal, but Zhone is not a typical startup. The 10-month-old firm raised $500 million in venture capital right off the bat last October in a year when $7 million was the average.

Zhone immediately bought publicly listed telecom gearmaker Premisys Communications for $240 million. A few weeks ago it began work on a 300,000-square-foot headquarters for 1,500 workers in Oakland, Calif.

The minds behind Zhone are Mory Ejabat, 49, and Jeanette Symons, 37. The duo who built Ascend Communications from scratch to $1.4 billion in sales in nine years, selling to Lucent for $24 billion last year. They now claim to have a “magic box,” a variation of a telecommunications switch that can eliminate the bottleneck known as the Last Mile, that final stretch of cable, fiber or copper into homes.

Ejabat reportedly figures he has enough cash for another big buy like Premisys and some smaller ones to fill in technologies the company lacks. If money gets tight (you never know), Ejabat can always go public, which would let the city know just how smart it was.