Reporters at Cramer's own theStreet.com don't see it the same way he does either:
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Top Stories: Tellabs Deal to Buy Ciena
Creates Powerhouse in Hot Market
By Kevin Petrie
Staff Reporter
6/3/98 3:40 PM ET
Tellabs (TLAB:Nasdaq) is buying a chip in the optical game.
Tellabs plucked up Ciena (CIEN:Nasdaq) in order to bolster its
position in the rising optical-network business. While the
dominant data networker Cisco (CSCO:Nasdaq) might still
make a play for this market, for now Tellabs has secured the
slickest manufacturing outfit in a hot new field. The premium on
this stock swap is fast vanishing as Ciena shares rise
Wednesday, and some investors are sorry to see this pure play
fold into a larger concern. But they'll stick with Tellabs in order to
test the synergies.
Tellabs plans to issue a share for each share of Ciena's stock.
Based on Wednesday afternoon's price, the deal would value
Ciena at $6.87 billion, or 63 11/16 per share. Tellabs was down
2 3/16 at 63 11/16, while Ciena was up 4 3/8 at 61 7/8.
Ciena will have had a brief childhood. Trading over 61
Wednesday, Ciena's stock has more than doubled its February
1997 IPO price of 23 as revenue and profits have almost tripled.
But there's little time now for nostalgia.
"As a Ciena shareholder, I don't want to let go of the stock. I
would rather play it as a pure play," says Chuck McCurdy,
executive vice president at Veredus Asset Management.
However, he adds, "We'll probably end up owning Tellabs."
The merger pairs Michael Birck, the 60-year-old chief executive
who founded Tellabs in 1975, with Ciena CEO Patrick Nettles.
Nettles, whose age wasn't given in company materials, came to
Ciena in 1994 after several stints with smaller concerns. From
1989 to 1992, Nettles was CFO of Optilink, a supplier of optical
components for local phone carriers that was later acquired by
DSC Communications (DIGI:Nasdaq).
"This is a real feather in Pat Nettles' cap," says one Ciena
shareholder. "He's going to be running Tellabs, basically.
Michael Birck is going to become more of a senior statesman."
The investor sees little challenge in melding the corporate
cultures of Ciena, a Maryland company, with Illinois-based
Tellabs. Both carry an entrepreneurial spirit, he says.
Another investor says that at a securities conference last year,
Ciena executives inadvertently damaged Tellabs stock by
stating that Ciena products might in time supplant certain uses
of an older technology built by Tellabs.
It was an overreaction. But Wall Street has long been
preoccupied with picking the winners and victims in the
emerging optical-networking business.
Optical networking, a hot-button term in techland these days,
has a simple meaning: As the Internet swells to accommodate
mountains of messages, it relies increasingly on systems
made of optical fiber or glass. Optical systems squirt photons
instead of electrons. Ciena extended the bandwidth of optical
systems by building so-called dense wavelength division
multiplexing boxes, which send 16 or more simultaneous
streams of light signals through a single fiber.
"Long-haul networking has always been optical," says Tom
Nolle, president of the CIMI consulting firm. "What Ciena has
done is make DWDM, which makes fiber more efficient."
So Ciena gives Tellabs a big foot in the optical-networks door
and increases its bandwidth. But Nolle says there is a missing
link -- advanced switches that fuse optical systems without
conventional electronic infrastructure. If Ciena doesn't devise
such a product, Nolle says, it likely will be relegated to the role of
"plumber."
Several people who follow the market say Cisco might make a
competing bid for Ciena. Cisco CEO John Chambers has long
said that large tech mergers pose problems. Arguably, Cisco
stole market share from its rivals such as 3Com
(COMS:Nasdaq) after its acquisition of U.S. Robotics last year.
However, Cisco cannot afford to ignore the optical business that
Ciena dominates. In late April, it partnered with Ciena and
disclosed plans to sew its routers onto Ciena's DWDM boxes.
So far, Cisco hasn't thrown its hat in the ring. Ciena's CEO
Nettles told the press in a midday conference call that the
company has seen no competing bid. Executives said the
alliance with Cisco will remain intact. One investor thinks Cisco
will keep a sharp eye.
"I don't think they're inclined to make a hostile bid, but down the
road they might court the combined companies," says McCurdy.
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Doug |
