Tellabs, Ciena Silence Is Leaden, Say Shareholders
Dow Jones Newswires -- September 10, 1998
By Shawn Young
NEW YORK (Dow Jones)--Tellabs Inc. (TLAB) and Ciena Corp. (CIEN) are maintaining a silence about their trouble-ridden merger that shareholders are finding ominous, investors said Thursday.
The merger between the two telecommunications-equipment makers was renegotiated last month after Ciena, of Linthicum, Md., announced an earnings shortfall followed by news that AT&T Corp. (T) wouldn't become a customer.
On Wednesday, already-jittery shareholders learned that Digital Teleport Inc., a privately held St. Louis company, awarded a contract to a Ciena competitor, Pirelli SpA. of Italy. The news sent Ciena's shares down 30.2% in a flood of trading and raised questions about whether the merger will stand, be renegotiated yet again or collapse altogether.
"The longer this goes without a comment from Tellabs, the more ominous it is," said one arbitrager who requested anonymity, as did most professional investors interviewed Thursday.
A rousing defense of the deal from Tellabs and some good news from Ciena about fourth-quarter earnings or contracts would help restore investors' confidence in the merger and their willingness to vote in favor of the deal, several shareholders said.
In the absence of such comments, shareholders said they view the merger - and their support for it - as imperiled.
Lionel Harley, a retired elevator repairman from New York's Bronx borough, bought 1,000 shares of Ciena earlier this month and sold on Thursday, losing half his investment.
He said he bought after Tellabs cut its original offer for Ciena thinking there would be no more mishaps.
"I think this was very misleading," he said. "What you were told, you really expected to make money, not lose half your investment," Harley said.
Tellabs may be feeling the same way.
President and Chief Executive Michael Birck said Friday he didn't expect any more developments that could damage the deal. Company officials said Wednesday they had not previously been aware that Pirelli would win the Digital Teleport contract.
Other than that, Tellabs generally declined to comment Wednesday and Thursday.
"The few comments we've had are not encouraging," said one arbitrager, who interprets the quiet as Tellabs trying to distance itself from Ciena.
The dissolution or renegotiation of the deal so that Ciena would fetch a lower price might be wiser for Tellabs, of Lisle, Ill., than trying to stick with the existing terms, some investors said.
One Tellabs shareholder said he would not vote in favor of the deal in its current form. Renegotiation would be the best course, he said. Other shareholders said they are waiting to hear what the companies have to say before deciding how to vote.
One investor who recently sold his stock in the companies said there have been so many ugly surprises in this merger so far that nothing could bring him back in.
"It's not a coincidence that bad things are happening," he said.
The sense that Ciena has been less than candid about its prospects and Tellabs was less than diligent in its "due diligence" study of its partner has undermined the credibility of both companies and their
deal, investors said.
A strong feeling that whatever is going on can't be good helped drive Ciena shares down another 2 5/8, or 13.3%, to 17 1/8, a new 52-week low, on Nasdaq volume of 8 million. Average daily
volume is 4.4 million.
Tellabs shares, which gained 3.5% Wednesday, rose another 3/16, or 0.4%, to 45 1/8 earlier on Nasdaq volume of 4.1 million, compared to a daily average of 5.7 million.
Trading indicates doubt that the deal will stand, at least in its current form, market-watchers said.
Ciena didn't return a call requesting comment Thursday morning.
- Shawn Young; 201-938-5248; shawn.young@cor.dowjones.com
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