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ONI Weighs Its Options

Light Reading
News Analysis
Light Reading
5/26/2000

A number of sources believe that ONI Systems Inc. http://www.oni.com, the metropolitan-area optical networking specialist whose IPO has been delayed for four straight days, may be negotiating to be acquired rather than going public.

The most likely candidate: Juniper Networks Inc. http://www.juniper.net (Nasdaq: JNPR), according to one source who claims to be close to the deal. It's certainly not far-fetched, as both Juniper and ONI are portfolio companies of venture-capital firm Kleiner Perkins Caufield & Byers http://www.kpcb.com, whose well-known partner Vinod Khosla serves on Juniper's board.

Several months ago, there was talk of ONI being bought in the $7-$8 billion range by a company such as Cisco Systems Inc. http://www.cisco.com (Nasdaq: CSCO) or Juniper. ONI decided to go public, ostensibly because it could earn a higher valuation in an IPO.

But several months later, Nasdaq has tanked. Valuations are down, and best estimates put the public-market valuation of ONI, post-IPO, in the $6 billion range. A higher number from a company with a more stable stock price--and another product line--would be appealing.

It's also odd that ONI's IPO has been inexplicably delayed, for four straight days, before a long weekend. Indeed, the long weekend seems to be ripe for deal-making, with the major networking show Supercomm approaching in less than two weeks.

"In the long weekend you have more hours to make the deal, so it all makes sense (that somebody is trying to acquire them)," says B.J. Halavi, a partner at PPI Capital Inc. http://www.ppi2000.com, a venture capital firm specializing in optical components.

In the abyss of a stock-market slump, might not Juniper stock look more attractive to ONI?

"This was the same thing that Cerent had to think about--do you want to own your own shares of stock as currency or do you want Cisco shares?" says Halavi (Cisco announced it would acquire Cerent for $6.9 billion following the Labor Day weekend in 1999).

The source citing Juniper as the acquirer was thinking along the same lines: "Juniper has an optical hole to fill. ONI thought they were worth $8 billion and now it looks like an IPO would only get them $6 billion."

The same source said if the deal didn't go through over the weekend, ONI Systems Inc. would go public early next week.

--R. Scott Raynovich, Executive Editor, Light Reading (http://www.lightreading.com)

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