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Ciena Beats NSN to Buy Nortel's MEN

Ciena outbids Nokia Siemens in weekend-long auction process, paying $769 million for Nortel's optical and Ethernet assets

November 23, 2009

3 Min Read
Ciena Beats NSN to Buy Nortel's MEN

Following a weekend-long auction process that began Friday and ended Sunday, Ciena Corp. (NYSE: CIEN) beat Nokia Networks in the two-horse race to buy Nortel Networks Ltd. 's Metro Ethernet Networks (MEN) division.

Ciena won the auction with a final bid worth $769 million, comprising $530 million in cash plus "convertible notes" (that attract annual interest of 6 percent) with a total value of $239 million. (See Ciena to Buy Nortel's MEN and Nortel Sells MEN to Ciena.)

Ciena's opening bid, which triggered the auction, was worth $521 million ($390 million in cash and $131 million in stock). (See ITU: Ciena Bids $521M for Nortel's MEN.)

The concluded acquisition is set to be considered by bankruptcy courts in the U.S. and Canada on December 2.

Nokia Siemens was the first to break cover, announcing early Monday that, along with its "financial partner," it "did not submit the highest bid" for Nortel's optical and carrier Ethernet division. NSN noted that it believes its "final offer represented fair value for the assets, and further bidding could not be financially justified," leaving the vendor, once again, without the Nortel business.

That "financial partner" is believed to be One Equity Partners , an investment arm of JP.MorganChase .

Ciena announced its success at 7:00 a.m. ET. "These optical and carrier Ethernet assets bring exceptional technologies, talent and scale that will accelerate Ciena’s current strategy to deliver innovative network solutions to customers worldwide," noted CEO Gary Smith in the company's official statement.

Ciena expects to offer jobs to about 2,000 MEN staff.

Closing the deal should be a relatively straightforward process for Ciena, as it has already received some regulatory clearances regarding the proposed acquisition. Ciena expects the acquisition to close during the first three months of calendar 2010. (See Ciena Gets Closer to Nortel MEN.)

MEN's declining sales
The MEN auction had been set to take place on November 13, but was delayed as Nortel sought additional participants. That gave the market an opportunity to gauge MEN's financial health, as Nortel reported its third-quarter results on November 17. (See Nortel Postpones Optical Auction and Nortel Shrinks Again.)

That report revealed that MEN's revenues for the first nine months of this year totalled $988 million, down 21.3 percent from $1,255 million during the first nine months of 2008. (Note: All figures include the relevant slice of Nortel's professional services operations, formerly known as Global Services.)

It also revealed that MEN's revenues have been on a steady quarter-by-quarter decline during 2009 -- $360 million, $333 million, and $295 million during the first three quarters, respectively -- as uncertainty about the division's fate hit its sales.

Despite the decline, Nortel's MEN is currently a much bigger business, by revenues, than Ciena, which generated $476.4 million in revenues during its tempestuous fiscal nine-month period to July 31 2009. (See Ciena Offers Hope, Charges Drag Ciena Deep Into the Red, and Ciena Cuts 200 Jobs as Sales Plummet.)

— Ray Le Maistre, International News Editor, Light Reading

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