WSJ. Analysts Debate What's Next For Humbled Tellabs, Ciena [ASND references]
September 15, 1998
By NICK WINGFIELD
THE WALL STREET JOURNAL INTERACTIVE EDITION
SAN FRANCISCO -- Now that their proposed marriage has crumbled
after a month of turmoil, where do Tellabs and Ciena go from here?
On Tuesday, shares of Tellabs rebounded slightly, while Ciena was flat,
after both were hammered Monday. Shares of Tellabs rose 3 9/16, or
6%, to 41 1/4 on heavy Nasdaq Stock Market trading, after dropping
16% Monday. Ciena slipped 3/16 to 13 on Nasdaq, after falling 17% the
previous session.
Meanwhile, the Nasdaq Composite Index
added 12.42 to 1678.11, while Morgan
Stanley's high-tech 35 index rose 3.22 to
557.52.
The big drops in Ciena and Tellabs' shares
came after the two
telecommunications-equipment firms called off
their merger deal, which would have had
Tellabs acquire the smaller company for about
$3.98 billion in stock. The deal started to
come unhinged last month after Ciena warned
of disappointing third-quarter results and said
that AT&T, a major customer, wouldn't give it
a key contract. A precipitous decline in
Ciena's stock forced the companies in late
August to revise Tellabs' earlier $6.9 billion
bid for the company.
As the deal fell apart Monday, Tellabs also
warned that its third-quarter earnings would
be flat with second-quarter results, while Ciena warned that its
fourth-quarter revenue would be "materially below" third-quarter levels.
Although the deal's demise was a major embarrassment for both parties,
Wall Street analysts don't believe it will squelch other acquisitions or
mergers for very long. Both companies are at the center of a rapid
convergence between voice and data networking technologies that is
leading to a flurry of dealmaking.
Tellabs, a maker of gear that helps phone companies manage traffic on
their networks, had hoped to use Ciena, a maker of "mulitplexing"
hardware that boosts the capacity of fiber-optic networks, to offer a more
complete set of products to customers -- part of a general consolidation
that shows no signs of abating.
In Tellabs' case, though, analysts believe the company will let the dust
settle before making a major move again.
"I would be absolutely shocked to see any major acquisitions announced
before the end of the year," said Michael Neiberg, an analyst ING Barings
Furman Selz. "The lesson that came out of this [failed deal] is they tried to
take a big bite. My read is they feel a little bit burned," he said.
Steven D. Levy, an analyst at Lehman Brothers, said he believes Tellabs
will remain acquisitive, but agrees that the company will have other
priorities in the near term. "If anything, they need to go in and repair their
relationships with major shareholders who have not enjoyed this
rollercoaster ride," said Mr. Levy. "I know that I did not find it particularly
entertaining," he said.
On Tuesday, Mr. Levy revised his 12-month price target for Tellabs' stock
to $75 from $100 because of the deal's demise and the broader turmoil in
the stock market.
Analysts said Tellabs could potentially partner or acquire a number of firms
to bolster its product lineup. Jim Kedersha, an analyst at SG Cowen
Securities, said the Lisle, Ill., company could look to do a deal with a
maker of high-speed asynchronous transfer mode, or ATM, switching
equipment, such as Ascend Communications, Fore Systems or Newbridge
Networks, or a maker of telecommunications access equipment like
Advanced Fiber Communications. Tellabs could also choose to consider
another pure-play multiplexing company, such as closely held Canadian
firm Cambrian Systems, analysts said.
"Tellabs had put out this idea they wanted to
be a top-three player" in the networking
arena, said Mr. Kedersha. "If they're going to
do that, they need to play in other areas."
For Ciena, the need to find a partner may be
even more urgent. Published reports have
already suggested the Ciena could be a
takeover target for Ascend. "They can't make
it on their own," said Greg Mesniaeff, an
analyst at Robinson-Humphrey Co. "They
don't have the critical mass in terms of size and the talent pool of people
who can do software development and systems-integration work."
Tuesday's Market Activity
Elsewhere in the technology sector Tuesday, Solectron gained 6 1/16 to
49 9/16 on the New York Stock Exchange. Solectron, which provides
manufacturing services to electronic-equipment companies, posted
stronger-than-expected fiscal fourth-quarter earnings. Also,
Robinson-Humphrey raised its rating on the stock to long-term "buy" from
long-term "market perform."
Northern Telecom slipped 2 1/2 to 43 3/4 on the Big Board. The
Canadian telecom-gear giant said it was laying off about 3,500 workers,
though none at recently acquired Bay Networks (see article).
Cyberian Outpost added 11/16 to 7 7/16 on the Nasdaq Stock Market.
The on-line retailer entered into a one-year sales and marketing agreement
with Time Warner's Time New Media unit. Cyberian said it will be the
exclusive computer hardware, software and peripheral retailer within key
Pathfinder Network sites.
Dassault Systemes added 9/16 to 42 1/8 on Nasdaq. BancAmerica
Robertson Stephens raised its rating on the stock of the design-software
company to "buy" from "long-term attractive."
Write to Nick Wingfield at nick.wingfield@news.wsj.com.
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