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Tellabs dials up Ciena deal
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June 3, 1998: 2:44 p.m. ET
As market gels, telecom equipment makers connect for $7.1B
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NEW YORK (CNNfn) - Consolidating as demand soars for the high-tech telecommunications equipment they make, Tellabs Inc. said Wednesday it will buy Ciena Corp. for $7.1 billion in stock.
The deal, which is expected to bite into Tellabs' bottom line over the near term, could position the Lisle, Ill.-based equipment maker to take on larger rivals Lucent Technologies Inc. and Canada's Northern Telecom Ltd.
The nation's biggest phone companies are scrambling to outfit their networks to handle large data streams, while still accommodating voice traffic, which has meant soaring growth for well-managed equipment makers.
"As competition among service providers continues to heighten, equipment suppliers must help both incumbent and newly established carriers meet the demands for increasing and effectively managing the bandwidth in their networks," Michael J. Birck, Tellabs president and chief executive officer, said in a statement.
Ciena President and CEO Patrick Nettles said, "We expect the new combined company to accelerate the pace of evolution and speed of revolution in the public networks."
Ciena shares (CIEN) rallied for the second straight day on Wednesday, up 4-1/8 at 61-11/16 in midday trading, while Tellabs shares (TLAB) were off 2-3/8 at 63-1/2.
Analysts like the connection
Despite that dip in the stock price, analysts were upbeat about the deal, saying it will help Tellabs trim costs, pair up technological expertise and products and expand its customer base.
"We like it obviously," said Chandan Sarkar, an analyst at Soundview Financial Group who follows Tellabs. "It seems the arbitrageurs are having their way with it today, though."
Sarkar said Tellabs and Ciena have similar entrepreneurial cultures and could complement each other well in their product lines. But he is only "cautiously optimistic" because there has been more bloodshed than value created in the past in telecom equipment mergers.
Michael Neiberg, an analyst at Furman Selz, said the buyout will help Tellabs "get a foot in the door" among Ciena's customer base -- the telecommunications providers WorldCom Inc. and Sprint Corp.
Static on the line in the near term
Aside from one-time deal costs, Tellabs said the buyout is expected to dilute 1998 earnings slightly but have no impact next year.
Under terms of the deal, Ciena shareholders will receive one Tellabs share for each of their Ciena shares. That could boost Ciena shares, which already rose sharply Tuesday as speculation about a buyout hit the Nasdaq market.
The deal is expected to be accounted for as a pooling-of-interests and is expected to be tax-free to shareholders. Upon closing, Ciena will become a subsidiary of Tellabs.
Birck will be chairman and CEO of the combined company, which retains the Tellabs name, while Nettles will be president and chief operating officer.
The boards of both companies have approved the deal. It is still subject to government review.
Ciena, of Linthicum, Md., makes equipment that lets fiber-optic lines carry up to 40 times more voice and data traffic without a need for more lines. The company had about $373 million in revenues last year.
Lisle, Ill.-based Tellabs makes digital "cross-connect" systems linking incoming and outgoing lines and systems allowing many signals to travel over a single circuit. Tellabs had about $1.2 billion in revenue in 1997.
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Ciena
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