News makes Financial Times, London:
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TELLABS: $7bn deal for rival Ciena
By Richard Waters in New York
Tellabs, a fast-growing US telecommunications equipment company, yesterday unveiled a $7bn acquisition of rival Ciena.
Ciena, a six-year-old company that came to the stock market last year, has sprung to prominence by specialising in part of the technology needed to construct a new generation of high-capacity telecom networks.
The all-stock purchase touched off a wave of enthusiasm for other equipment makers on Wall Street, as investors looked for further mergers in a sector which is being transformed by the internet. Shares in 3Com, one of the biggest makers of data networking equipment, jumped by 8 per cent on the news.
Michael Birk, chief executive of Tellabs, said the acquisition was intended to create a company with the broader product and geographic reach to be able to compete with established international giants of the telecom equipment industry like Alcatel and Lucent. The aim was to create a company that would count among the world's three leading telecom equipment makers within five years, he said.
Tellabs, whose shareholders will control 65 per cent of the company after the acquisition, makes the equipment that manages the traffic on fibre optic networks. More than half of its $1.2bn in revenues last year came from digital cross-connect systems, which allow traffic to flow to different parts of a network in a way that makes the most efficient use of their capacity.
Ciena is a specialist in wave division multiplexing, a technology that makes it possible to cram far more information down existing fibre optic cables. Its main product enables telecom companies to increase the capacity of their networks by a factor of 16.
However, the company's shares lost some of their early gains earlier this year when it emerged that Lucent, the former telecom equipment arm of AT&T, had leapfrogged it with technology that could channel even more traffic down a single strand of fibre.
Ciena is thought to have been the subject of close interest from other companies looking to expand their product range, including Cisco Systems, the leading maker of data networking equipment. The agreement to be bought by Tellabs includes a $200m break-up fee Ciena would pay if the deal was not completed.
News of the acquisition came a day after Sprint, the third-largest US long-distance carrier, announced an ambitious plan to overhaul its infrastructure to produce a single network capable of carrying voice, video and data signals at lower cost. Sprint is a large customer of both Tellabs and Ciena, and Mr Birk said its plans to revamp its network helped explain why the two had decided to combine. Tellabs' biggest customers are the US Baby Bells, which are trying to modernise their voice networks to handle data traffic; Ciena's strongest links are with the newer telecom companies, which have attempted to build integrated voice and data networks from scratch.
Tellabs said it would offer one share for each of the 108m fully diluted shares of Ciena. Its stock slipped $2 3/16 on the news to $63 11/16, while Ciena's shares rose $4¬ to $61.
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