Light Reading: You've gone over the reasons for wanting to acquire MEN, but that was before you upped your bid by 48 percent. What makes this deal so crucial to be worth betting the company on?
Smith: I'll be candid: The first bid was opportunistic. We didn't expect that asset to go up for sale. But when it went up, the more and more we looked at it, it became obvious to us this was such a great fit. It gives us scale. It allows us to be the biggest North American player in optical Ethernet and one of the top three worldwide, and we also get access to R&D resources.
We saw a great fit from a portfolio point of view, and from a culture point of view. We think Ciena's future was great even without this purchase, but what this amounts to is that this accelerates our plans to scale by two to three years, and it allows us to touch multiple global customers.
It's a transformational move. It's not without its risk, and we went in somewhat skeptical. The good news is that we've had a long time in this process to get familiar with the asset. We had greater intimacy than anyone else, because we were the stalking horse. Everything we see tells us this will be a great fit.
What I'm focused on is customers, and the customer reaction I got when we did our due diligence, and the customer reaction I got this morning, has been very positive.
Light Reading: How do you convince investors? Your stock's down 8 percent already. [By the end of the interview, it was down $1.17 (8.9%) at $12.00.]
Smith: We will convince investors by executing. This is a great strategic opportunity.
Our two goals going into this were to continue to have a strong balance sheet, and for investors to not be diluted. They can clearly do well on the upside.
Light Reading: It's the biggest acquisition you've ever made, and most big acquisitions fail. How do you keep from being a casualty?
Smith: There are a lot of terms there that actually de-risk the deal for us in terms of integration and put the onus on Nortel. They're incentivized to provide certain things at certain times to make sure things go smoothly. [Ed note: For example, Nortel will help Ciena create back-office support for MEN -- a necessity because MEN's back-office systems will stay with Nortel, as Smith noted in October. At the time, Ciena estimated integration costs would be $180 million.] (See Smith: Why Ciena Wants to Reign Over MEN .)
Light Reading: The deal puts you in a net debt situation. How are you going to deal with that?
Smith: We've got a lot of cash, and we've got very detailed integration plans that are fully funded. We've got a very strong balance sheet that's been structured over a number of years. We were very disciplined around what we were prepared to pay.
Light Reading: You've got a few areas of overlap with MEN. How do you decide which side wins when it comes to 40- or 100-Gbit/s technology, for instance?
Smith: I'd encourage you to think of it in terms of technology rather than in terms of platforms. You take the technology that they've got and put that on standardized interfaces on the 5400 or the CoreDirector FS. (See Ciena Catches Packet/Optical Convergence Bug.)
People are thinking of that as platforms. When you think about it as technology, you can apply it across the portfolio.
Light Reading: Doesn't it bother you that revenues have declined for MEN this year?
Smith: Perversely, the slowdown in the economy actually slowed down a lot of people's migration away from it. Sometimes it's good to be lucky. There are carriers that delayed that decision that are now glad to see these assets in Ciena's hands.
Light Reading: You're saying you expect the deal to be accretive by 2011. But, really, how soon will Ciena/Nortel get to what you'd call a normal state of operations?
Smith: We're going to move very quickly. That's one of the lessons learned, is that you move quickly, you're decisive, and you're very clear and transparent. As we get to 2011, I would expect us to be flying in the right formation.
We intend to be pretty transparent about it. It's going to be a little bit bumpy for some time.
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