. Per CNBC news this morning, CIEN just issued an earning shortfall warning & the merger with TLAB still on.
. Also, from WSJ this morning re CIEN & TLAB; Good Luck to CIEN & TLAB shareholders
Will Tellabs-Ciena Deal Mean
New Clients on Top of the Old?
By LINDA SANDLER
Staff Reporter of THE WALL STREET JOURNAL
Amid the current rush to merge by telecommunications
companies, the $7 billion stock deal struck in June by Tellabs and
Ciena is applauded as another strategic triumph. Analysts say that
by combining, the two telecom-equipment makers will be better
placed to serve the giant Bells and long-distance carriers.
They say Tellabs, with its older technology for moving traffic
around on phone lines, needs Ciena, whose cutting-edge devices
allow fiber-optic networks to carry more calls.
Business: Telecommunications equipment manufacturer
Year ended Oct. 31, 1997*
1997
1996
Revenue (millions)
$373.8
$54.8
Earnings (millions)
$112.9
$14.7
Diluted per-share earnings
$1.09
$0.15
Latest quarter (April 30, 1998):
Diluted per-share earnings: $0.14 vs. $0.27
Shares outstanding: 101.6 million shares
Trailing P/E: 60 Dividend yield: N.A.
*Pro forma, company went public in February 1997.
But skeptics are wondering, as the two companies' shareholder
votes next Friday on the merger approaches, what exactly Tellabs
is buying. As new information comes in, some analysts question
whether Ciena will ever get a big, hoped-for contract from AT&T.
On top of that, interviews with Ciena's two primary customers,
WorldCom and Sprint, indicate Ciena's revenue from them may
not be as secure as many investors believe.
It is a dilemma for many acquiring companies and their
shareholders: Will the acquired company's customers walk out the
door?
Last year, Sprint bought an estimated $180 million of equipment
from Ciena. But Sprint spokesman Jeff Chaltas says, "We're going
to name a second vendor later this year" for the higher-capacity
multichannel box. While some analysts anticipated that Ciena
might lose a small part of Sprint's business, Mr. Chaltas says it isn't
certain if Ciena or the second vendor will get the lion's share of
Sprint's future purchases. "That depends on price and value, and
what their product is."
Meanwhile, WorldCom, awaiting a merger with MCI
Communications, stopped buying equipment from Ciena in
February. Ciena Chief Executive Patrick Nettles assured investors
that WorldCom's purchases from Ciena would resume later in the
year. But WorldCom officials say there is some uncertainty about
that because of the pending merger with MCI, known as an
efficient purchaser.
While Ciena's multichannel boxes once were "the only game in
town, competition caught up quickly with them," a WorldCom
spokesman adds. And Leslie Aun, an MCI spokeswoman, says,
"This merger has promised a fair amount of savings. Purchasing
will be key."
Indeed, Mr. Nettles says, "I think they'll require adjustments" in
pricing.
In Ciena's fiscal year ended Oct. 31, WorldCom and Sprint each
contributed about 48% of Ciena's revenue, or a staggering 96% of
the total. AT&T, meanwhile, is widely expected to contribute
$100 million to Ciena's revenue next year. June documents for the
Tellabs merger said that AT&T had stopped testing Ciena's
16-channel equipment, which multiplies fiber-optic capacity by
16, but would test Ciena's higher-capacity boxes.
But an AT&T spokeswoman says, "we will be dealing with
multiple vendors." Indeed, AT&T said at a January analysts'
meeting it would test Lucent Technologies' 80-channel system at
year end. "And if Sprint picks somebody else with Ciena, AT&T
could, too," says analyst Kevin Slocum of SoundView Financial
Group.
He downgraded Ciena's stock on July 31 from a short-term "buy"
to "hold," because of growing concern that Ciena might lose some
of the projected revenue from AT&T to Lucent, the highflying
AT&T spinoff, or France's Alcatel Alsthom, among others.
"It's going to be hard to make money in the Tellabs merger" until
AT&T shows its hand, Mr. Slocum says. If Ciena's larger, more
crucial relationships with Sprint and WorldCom also become
uncertain, he says, "That's a different thing than most people are
looking for."
Indeed, Wall Streeters expect Ciena's revenue to burgeon to $900
million or more next year, from an estimated $600 million or so in
fiscal 1998. But if there is a question mark over that growth, the
merger could be pricey for Tellabs, says one bear, who declined to
be named.
In the merger, each Ciena share will be exchanged for a Tellabs
share. Though both Tellabs, at 71 13/16 Thursday, and Ciena, at
71 3/16, are way off their highs, they still trade at similar prices.
Tom Scottino, Tellabs' investor-relations officer, says: "Due
diligence continues until the day the deal closes."
Ciena's Mr. Nettles says, "we've factored in" Sprint's desire to have
two suppliers. His confidence remains unshaken that WorldCom
will be coming back. |
