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Technology Stocks : Ciena (CIEN) -- Ignore unavailable to you. Want to Upgrade?

To: Gary Korn who wrote (2303)	6/11/1998 8:17:00 PM
From: Doughboy	Read Replies (1) \| Respond to of 12623

This was posted on the TLAB thread, and indicates an August '98 closing. Merger With Ciena A Major Strategic Positive; Reiterate Buy Price Target: $80-85 Today's Date : 06/03/98 Disclosure(s): Lehman Brothers Inc. makes a market in the securities of this company. --------------------------------------------------------------------- * We view yesterday's announcement by SONET/SDH leader Tellabs of plans to acquire Optical Networking/DWDM leader Ciena Corp for approx $7.1 Billion as a major strategic positive, combining two of the fastest growing players in our telecom universe. * Harnessing the expertise of Tellabs And Ciena should position the new entity as a technology leader in the new era of converged optical networks that carry voice and data. * Expanded sales channels for Ciena's platforms in RBOC & international accounts via Tellabs sales network should offer opportunities for significant incremental revenue growth. Teaming should also accelerate Tellabs rollout of new optical platforms. * With Tellabs forecasting dilution of around $0.10 in FY98, we believe that cost savings as well as prospects for incremental revenue growth may enable the deal to be accretive to our conservative FY99 estimate of $2.30. * New entity represents more formidable rival in DWDM for Lucent & highlights theme of consolidation in communications equipment. Price target of $80-85 based on enlarged Tellabs achieving a multiple of at least 35x our 1999 estimate of $2.30. ------------------------------------------------------------------- Accelerating The Delivery Of New Platforms We believe both companies have been devoting substantial resources towards the development of a next generation optical cross connect platform. It may now be possible for Tellabs to accelerate delivery to the market of these systems by as much as two years by combining with Ciena's expertise. Nearer term, we expect Tellabs to offer optical interfaces to its existing platforms, including some of the higher end systems it plans to rollout. Potential Changes To Our Model; Potential For Accretion in FY99 With the deal expected to close in late August, we expect the transaction to be dilutive by approximately $0.10 in Tellabs's 4Q98. Looking into FY99, we actually see meaningful opportunities for the deal to add to our conservative existing estimate for Tellabs of $2.30. We view the $50-55 million range of cost savings cited by management as achievable in FY99 as conservative. In particular, the company will have significant opportunities for manufacturing and piece part saving as a larger entity. In addition, in the sales and marketing expense area, Ciena will no longer be expected to spend heavily on building an overseas sales network. G&A expenses should also move lower for the new company on a proforma basis. We expect gross margins for the new company to be in a range of around 60-61% versus Tellabs current 63% range. operating margins for the enlarged company should be in a range of 29-30%. On the revenue line as mentioned above, Tellabs should now see a meaningful acceleration from the 30% rate we had modeled. lehman.com