23 November, 2009
UPDATE 4-Ciena beats NSN to buy Nortel ops for $769 mln
* U.S. network gear maker outbids Nokia Siemens Networks
* Ciena to buy Nortel optical, ethernet business
* To pay $769 mln: $530 million cash, $239 million notes
* NSN's bid 'came close;' says further bid not justified
* Ciena shares fall nearly 9 percent
(Adds CEO comments, updates share price)
By Tarmo Virki and Anupreeta Das
HELSINKI/NEW YORK, Nov 23 (Reuters) - Ciena Corp (CIEN.O)
agreed to buy the optical networking and ethernet equipment
businesses of bankrupt Nortel Networks (NRTLQ.PK) for $769
million after trumping a bid from Nokia Siemens Networks.
The deal, which ends a three-day auction, will vault Ciena
to third place in the optical network equipment market,
boosting it against bigger rival Alcatel-Lucent (ALUA.PA) and
Huawei Technologies Co [HWT.UL].
But Ciena shares were down nearly 9 percent as investors
worried about how the U.S. network equipment maker will
integrate the new assets, which are expected to double Ciena's
size, and how it will cope with an increased debt load.
Ciena agreed to pay $530 million in cash and $239 million
in 6 percent senior convertible notes due 2017 for the assets.
Morgan Keegan analyst Simon Leopold downgraded his Ciena
rating to "market perform" from "outperform" after the news. He
said the winning bid was above his $400 million to $750 million
valuation range for the assets and "appears as a win at all
costs approach" from Ciena.
"We feel that Ciena is assuming too much risk and degrading
its balance sheet," Leopold said. "It will take time before
there's sufficient evidence to assess whether it's a success
for failure."
Ciena Chief Executive Gary Smith defended the deal. "It is
a large integration (but) made easier by the fact that it's
such a good fit," Smith said in an interview. "It's incredibly
complementary on terms of technology, people and customers."
The deal is structured to give Ciena flexibility in
managing the debt it will take on, Smith added.
Pacific Crest analyst Brent Bracelin estimated that Ciena
will have $1.3 billion in debt and $500 million in cash after
the deal.
"It's probably a long-term positive in that it will
position Ciena with the size and scope to compete," Bracelin
said, but he noted that investors are disappointed that the
final price was much higher than Ciena's original bid.
PRICE CONCERNS
Last month, Ciena made a stalking-horse offer for the
assets to Nortel, the Canadian company that has been auctioning
off assets since it filed for bankruptcy in January.
Ciena's initial offer was for $390 million in cash and 10
million shares, for a total deal value of $522 million based on
Friday's closing price of Ciena stock.
Ciena said it expected the transaction to add significantly
to its results from operations in fiscal 2011. But investors
are still concerned that the deal will weigh down its
operations.
Ciena, which had $902.4 million revenue in its fiscal year
ended Oct. 31, 2008, will now have to swallow a business that
brought Nortel annual revenue of $1.36 billion.
"In the short term, there'll be concerns about the purchase
price, the combined debt burden they'll have and integration
risks," Bracelin said.
The original Ciena bid set a floor price, but Nortel was
free to seek higher offers. Rival Nokia Siemens, a venture of
Nokia (NOK1V.HE) and Siemens (SIEGn.DE), had teamed with
private equity firm One Equity Partners and came "very close"
to Ciena's offer, a source close to the deal said.
"Nokia Siemens Networks believes that its final offer
represented fair value for the assets, and further bidding
could not be financially justified," the company said in a
statement.
HEADACHE FOR NOKIA SIEMENS
Ciena sees the purchase of Nortel's Metro Ethernet Networks
business as an opportunity to increase sales. The equipment
supplied by both companies is used to support Internet access
for corporations and consumers.
Ciena shares were down $1.17 or 8.9 percent at $12.00 on
the Nasdaq at midday on Monday after the company confirmed
details of the deal.
Nokia Siemens -- which is struggling to make a profit in
the face of aggressive competition from Huawei -- was looking
to strengthen its position in North America, one of its top
four growth targets, along with India, Japan and China.
Nokia Siemens lost a similar auction in July, when bigger
rival Ericsson (ERIAF.PK) snapped up Nortel's CDMA assets.
"Nokia Siemens should fix its market share in the United
States. An acquisition would be the fastest solution for that,
but integrations are costly and the company is in the midst of
restructuring anyway," said Pohjola analyst Hannu Rauhala.
Nortel has yet to sell its assets related to GSM and GSM-R
technologies. These assets could also interest Nokia Siemens.
($1=.6697 Euro)
(Reporting by Tarmo Virki and Anupreeta Das, additional
reporting by Sinead Carew in New York; editing by Jon
Loades-Carter and Matthew Lewis)
Source: http://www.reuters.com
UPDATE 4-Ciena beats NSN to buy Nortel ops for $769 mln Added: (23.11.2009)
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