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Ciena to Buy Cyras?

Light Reading
News Analysis
Light Reading
12/13/2000

Ciena Corp. (Nasdaq: CIEN) may be trying to acquire Cyras Systems Inc., according to several sources.

Proposed price tag, according to one Silicon Valley venture capital source: $2 billion. Sources said the companies were "talking," but noted that terms may not be reached.

A Ciena official said the company does not comment on rumors.

One Wall Street source said the rumor was also making its way among traders. That may partially explain why Redback Networks Inc. (Nasdaq: RBAK) shares were down $13 -- and nearly 14 percent -- in trading Wednesday. Redback's optical networking product, the SmartEdge, competes with products being developed by Cyras (see Cyras Systems). Cisco Systems Inc. (Nasdaq: CSCO) is the early leader in the same market, with its ONS 15454 product.

If a deal actually transpires, it would mark the last of three related private companies to develop Sonet-based data networking gear and sell for multiple billions of dollars. In 1999 Cisco acquired Cerent Systems, the producer of the ONS 15454, for $7 billion, and Redback earlier this year paid $5 billion for Siara Systems. Cerent, Cyras, and Siara were all spun out of Fiberlane Communications, a private company (see Cyras: The Next Cerent? ).

A Cyras deal would make a lot of sense for Ciena, which needs to expand its optical networking product portfolio. Ciena's core optical swith, CoreDirector, is selling well, but the company would like to move into the metropolitan optical networking market, and previous acquisitions have not had the desired effect. The next-generaton Sonet market is currently a hot spot. For example, Cisco regularly brags that it will sell $1 billion worth of its ONS 15454 in 2000.

The deal would also set the stage for a cutthroat battle among three public companies -- Cisco, Redback, and Ciena -- for the same metro market.

"For $2 billion, [Cyras] would be a good deal for Ciena," said the venture capitalist source, whose firm is not an investor in Cyras. The source, who asked to remain unnamed, said that Cyras had recently gotten a reputation for not having a fully-baked company, explaining why the price tag might be lower than that of Cerent and Siara.

Indeed, Cyras has had a rocky history, despite recently being named to Light Reading's Top Ten Private company list (see Light Reading's Top Ten Private Companies). The CEO quit in August, just one week after going on a publicity tour to prepare the company for the possibility of an IPO (see Cyras CEO Resigns). That departure was followed by the departure by several other executives (see Another Cyras Exec Quits ). Suddenly, the prospect of an IPO did not seem so real, which may have led Cyras down the acquisition path.

-- R. Scott Raynovich, executive editor, Light Reading http://www.lightreading.com

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