<<Ciena Keeps Crumbling; Potential Nortel Deal Has Investors Worried
Posted by Eric Savitz
Oct 6, 2009
2:03 PM
Ciena (CIEN) shares are not reacting well to the news that the company is in talks to acquire Nortel’s Metro Ethernet Networks business.
In a release yesterday, Ciena acknowledged that it is holding talks about buying the Nortel unit. The announcement came after the company apparently inadvertently posted - and then took down - a news release that said the company had a deal to acqurie the Nortel unit for $400 million in cash and 10 million Ciena shares. (Again, I would note that the release has been taken down, so it is hard to know the current status of discussions.)
Here’s a quick look at some of today’s analyst commentary on the promise - and risks - of such a combination:
* Paul Silverstein, Credit Suisse: He has a Neutral rating and $11 price target, which is below yesterday’s close at $14.17. He says the proposed deal “poses near-term risks to CIEN and its shareholders,” including the impact on net cash, integration risk and potential EPS dilution. He also notes that there are other potential bidders, including Ericsson (ERIC), Nokia Siemens (NOK) and Infinera (INFN).
* Hasan Imam, Thomas Weisel Partners: Market Weight rating. “The asserts are expensive for CIEN, and would stress its balance sheet and introduce new integration/restructuring challenges.”
* Nikos Theodosopoulos, UBS: He says Ciena would go from a product story to a scale story; the deal would add 1,300 people to the 2,100 at the company now, and add $1.4 billion in revenue to a base of about $750 million. It would also likely move the balance sheet from a net cash position to one of net debt. He maintains a Neutral rating and $14 target.
* Tal Liani, Bank of America/Merrill Lunch: He maintains an Underperform rating and $10 price target. “We are mostly positive on the implications of such a deal long term, but also see risks it offers,” including lower growth rates, a more leveraged balance sheet and integration risks.
CIEN is down 81 cents, or 5.7%, to $13.36; the stock is down more than 18% over the last four sessions.>>
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