From the WSJ
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Tellabs Announces Agreement
To Buy Fiber-Optic Firm Ciena
Scramble for Data Networks Prompts
Stock Accord Valued at $7.1 Billion
By STEPHANIE N. MEHTA and STEVEN LIPIN
Staff Reporters of THE WALL STREET JOURNAL
Tellabs Inc., a highflying telecommunications-equipment maker, agreed to acquire Ciena Corp., a supplier of fiber-optic communications gear, for about $7.1 billion in stock.
The purchase, 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.
Under the agreement, each share of Ciena common stock will be exchanged for one share of Tellabs common stock. Based on the Tuesday's closing prices on the Nasdaq Stock Market, the transaction offers a 14% premium for Ciena shares. Ciena closed at $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 (see related article) 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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