Nortel in Talks to Buy Qtera for Up to $3.5 Bln
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Thursday December 9 5:50 PM ET
Nortel in Talks to Buy Qtera for Up to $3.5 Bln
By Jessica Hall
NEW YORK (Reuters) - Canadian telecommunications equipment firm Nortel Networks Corp.(Toronto:NT.TO - news)(NYSE:NT - news) is in talks to buy Qtera Corp., a privately-owned maker of optical networking equipment, for up to $3.5 billion in stock, industry sources said on Thursday.
Boca Raton, Fla.-based Qtera is developing technology that allows fiber optic communications lines to carry signals further without needing regeneration.
The acquisition of Qtera would help Nortel maintain its strong presence in the fast-growing fiber optic networking market.
Qtera could not be immediately reached for comment. Nortel declined to comment, but industry sources familiar with the situation said the companies have been talking, and rumors have circulated for weeks.
''The price is $2.8 billion, and it could go as high as $3.5 billion if someone else jumps in to bid, but I don't think they will,'' said an industry source who declined to be named.
Another industry source said the two companies have been talking for weeks.
''We never comment on rumors regarding takeovers, potential takeovers -- anything like that,'' said Nortel spokesman Jeff Ferry.
Shares of Nortel finished down 11/16 at 82-5/8 on the New York Stock Exchange and were off 95 cents Canadian at C$122.50 on the Toronto Stock Exchange.
Qtera is one of several niche players in the fast-growing optical networking market, which is seen as the new revolution in the communications equipment industry, analysts said. The stocks of
companies throughout the segment -- ranging from those who make fiber optic cables to the sophisticated components that speed the transmission across those cables -- have soared.
As Internet traffic continues to explode, telephone and cable television companies must upgrade or replace their networks to keep up with demand. Optical networking equipment can ease the logjams, speed transmission rates and lower costs.
Nortel controls 32 percent of the global market in the key optical Internet-related products, according to a study by consulting firm Ryan Hankin Kent published November 18. The market is worth $19.4 billion, the study said.
Although demand for optical products is booming, some analysts questioned why Nortel would pay such a hefty sum for technology it could develop on its own.
''This is not something that Nortel should even be going after. If they don't have their own product or the ability to do this on their own, that's showing some weakness. Why would you pay that kind of price?'' said Frank Dzubeck, president of consulting firm Communications Network Architects.
Other analysts said buying, rather than developing, the technology would allow Nortel to offer such products faster. Qtera would also bring a talented staff, a prized commodity in a field which is seeing tremendous competition for experienced engineers and researchers.
''The time to market and have a product out there with your name on it in this market is more important than developing the ultimate solution six months after the fact,'' said Rob MacLellan, analyst at CT Securities in Toronto.
''Long-term, it's a good move for Nortel. They'll pay through the nose for it, however,'' said MacLellan.
The Qtera purchase would continue the wave of takeovers in the optical networking market. Corning Inc. (NYSE:GLW - news), which invented fiber optic cable more than 20 years ago, recently agreed to buy Oak Industries Inc. (NYSE:OAK - news) for $1.8 billion.
Data networking leader Cisco Systems Inc. (NasdaqNM:CSCO - news) in August agreed to buy start-ups Cerent Corp. and Monterey Networks Inc. for a combined $7.36 billion in stock in its most aggressive move yet into optical networking
JDS Uniphase Corp. (NasdaqNM:JDSU - news), the product of a merger between San Jose, Calif.-based Uniphase Corp. and Canada's JDS Fitel Inc., last month agreed to buy Optical Coating Laboratory Inc. (NasdaqNM:OCLI - news) for $2.8 billion.
Christopher Wolfe, an equities market strategist with J.P. Morgan Asset Managemenet, said companies such as JDS Uniphase, SDL Inc. (NasdaqNM:SDLI - news) and Sycamore Networks Inc. (NasdaqNM:SCMR - news) are among companies that will benefit from the growth in the Internet, the transition from copper telephone lines to fiber optics space, and the shift from analog technologies to digital. |
