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June 3, 1998
Tellabs to Announce Agreement
To Buy Fiber-Optic Firm Ciena
Scramble for Data Networks Prompts
Stock Accord Valued at $7.5 Billion
By STEPHANIE N. MEHTA and STEVEN LIPIN
Staff Reporters of THE WALL STREET JOURNAL
Tellabs Inc., a highflying telecommunications-equipment maker, is expected
to announce plans to acquire Ciena Corp., a supplier of fiber-optic
communications gear, for about $7.5 billion in stock, according to people
familiar with the situation.
The purchase, which is expected to be announced Wednesday, would
combine two companies that have capitalized quickly on the furious
scramble by telecommunications carriers to build high-capacity networks to
handle voice, data and video.
Ciena, based in Linthicum, Md., supplies the big phone companies with
equipment that boosts the capacity of their fiber-optic networks. Tellabs, of
Lisle, Ill., makes "digital cross-connect" switches that help phone companies
and other corporations manage traffic on such high-speed data networks.
Ciena, based in Linthicum, Md., supplies the big phone companies with
equipment that boosts the capacity of their fiber-optic networks. Tellabs, of
Lisle, Ill., makes "digital cross-connect" switches that help phone companies
and other corporations manage traffic on such high-speed data networks.
Ciena wouldn't comment, and Tellabs didn't return calls. But people close to
the transaction said it would value Ciena at nearly $66 a share, a 15%
premium over Tuesday's Nasdaq Stock Market closing price of $57.5625 --
up $6.1875, or 12%, after a jump in the last hour of trading amid rumors that
a deal was in the works. Shares of Tellabs, a popular company with
investors, closed at $65.875, up 6.25 cents, also on Nasdaq.
Both companies are well-situated to capitalize on the current boom in data
networking, particularly as the Internet puts increasing pressure on carriers
to boost and manage capacity and streamline their networks. Tuesday, this
challenge for carriers was brought into stark relief by Sprint Corp.'s
announcement that it will streamline its network to one system that relies
heavily on network gear favored for Internet traffic. Ciena is a major
supplier to Sprint and likely will factor into Sprint's plan to boost the capacity
of its network by 17% to handle an anticipated explosion in voice, video and
data traffic.
But Ciena has seen some trouble lately. Lucent Technologies Inc., the big
equipment maker spun off from AT&T Corp., recently announced a
capacity-boosting system that provides far more bandwidth than Ciena's
current line, though Ciena claims it is close to topping Lucent's new systems.
Big customer WorldCom Inc., which plans to purchase MCI
Communications Corp., the nation's second-largest long-distance carrier, is
scaling back its purchases of Ciena's gear.
And just this week, Ciena said it settled a longstanding patent dispute with
Italian rival Pirelli SpA, which had claimed that Ciena infringed on its patents
for fiber-optic technology. Ciena agreed to pay $30 million and undisclosed
running royalties to Pirelli. Ciena said it will record a one-time charge of $20
million, or 12 cents a share, in the quarter ending July 31 as a result of the
settlement.
Tellabs, founded in 1975, has been able to capitalize on phone companies'
need to manage vast streams of voice and data traffic just as data is
overtaking voice as the primary cargo of phone networks world-wide.
Tellabs' equipment is used to switch data streams and manage the traffic.
Buying Ciena would seem to fill a hole in Tellabs' product roster: fiber-optic
transmission gear. In February, Tellabs agreed to acquire Coherent Inc.,
which makes "echo-cancellation" and conferencing gear for telecom
carriers, including cellular-telephone companies and large corporations, in a
stock swap valued at $800 million.
The acquisition underscores the move by telecom-equipment companies to
beef up their data assets to challenge big data-networking companies such
as Cisco Systems Inc., which has been making inroads in the
telecommunications-carrier market. Lucent has been on a tear in recent
months, buying companies that specialize in equipment that helps public
carriers contend with Internet traffic, including systems that give customers
access to the Internet through the public network. Northern Telecom Ltd.,
another major supplier, has also beefed up its data line and could be trolling
for acquisitions.
For its fiscal year ended Jan. 2, Tellabs reported net income of $263.7
million on sales of $1.2 billion. Ciena, which went public last year, posted net
income of $112.9 million on revenue of $373.8 million for its fiscal year
ended Oct. 31, 1997.
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