ITU: Ciena Bids $521M for Nortel's MEN

GENEVA -- ITU Telecom World 2009 -- Ciena Corp. (NYSE: CIEN) has bid $521 million -- $390 million in cash and 10 million Ciena shares -- for Nortel Networks Ltd. 's MEN (Metro Ethernet Networks) division, following its initial expression of interest earlier this week. (See Ciena's Looking Over Nortel's MEN.)

The move positions Ciena as the official initial bidder for Nortel's assets, and means a competitive bidding process will now take place in about a month or so. Nortel has already sold some of its wireless and enterprise assets through such competitive bidding processes. (See Avaya's $900M Bid Wins Nortel Auction, Ericsson Delivers Knockout Blow to NSN, and Ericsson: Why We Want Nortel's Wireless.)

The total price of $521 million is based on the $13.05 price of Ciena's stock at close of trading Tuesday. In pre-market trading this morning, Ciena's share price was up $0.10 to $13.15, though news of its bid was still being digested by investors.

At least one analyst thinks Ciena's shareholders shouldn't worry too much about the impact on the vendor's cash pile and bottom line of such a deal, because he thinks Ciena will be outbid by one of its optical systems rivals anyway!

Ciena has signed an agreement to buy Nortel's long-haul optical transport portfolio; metro optical Ethernet switching and transport solutions; Ethernet transport, aggregation, and switching technology; multiservice Sonet/SDH product families; and network management software products. Those assets generated revenues during the first half of 2009 of $556 million.

Ciena says it will offer jobs to about 2,000 Nortel staff, a move that would nearly double its headcount. If Ciena completes the acquisition, Ottawa would become the firm's largest product and R&D center. Ciena estimates the cost of integrating Nortel's optical and Ethernet business would be about $180 million.

In a prepared statement, Ciena's CEO Gary Smith stated that buying Nortel's MEN division would advance his company's strategy and growth plans by two or three years. "We believe this transaction will position us for faster growth by giving us greater geographic reach, broader customer relationships and a deeper portfolio of solutions. We believe we are best positioned to leverage these assets, thereby creating a significant challenger to traditional network vendors."

Smith had been due to attend the ITU Telecom event in Geneva this week, but pulled out at the last minute, though Ciena staff here claimed that decision had nothing to do with the Nortel negotiations but was due to "other business."

The Ciena executives who are here in Geneva aren't saying much either. Ciena CTO Steve Alexander declined to comment on any particular parts of Nortel's optical portfolio -- 100 Gbit/s, for example -- that he's eager to get his hands on, saying only that "any chance to accelerate our strategy is exciting."

But Alexander probably won't get a chance to play with Nortel's optical technology, believes Soleil Securities Group Inc. analyst Michael Genovese.

In a research note issued today, Genovese writes that, in his view, Ciena stands only a 25 percent chance of winning the bidding war. Genovese expects Ciena's initial bid to entice Cisco Systems Inc. (Nasdaq: CSCO), Ericsson AB (Nasdaq: ERIC), Nokia Networks , Infinera Corp. (Nasdaq: INFN), and maybe others, into the auction.

And he believes Ciena won't have the financial clout to match its rivals. "As the price likely escalates towards $800-$1,000 million, we expect Ciena to drop out of the process," writes the analyst. "We think Cisco, Ericsson, Nokia [Siemens], and Infinera have also been looking at assets and are prepared to bid significantly higher than Ciena."

In fact, Genovese hopes Ciena doesn't win the auction. "There is no price at which we think MEN would be a good purchase for Ciena," as the move would impinge upon Ciena's packet/optical product cycle. "The Nortel assets are overwhelming legacy optical oriented and are not particularly strong packet/optical platforms," notes the analyst. "We are not overly concerned about another vendor buying the assets."

What's interesting in that note is that Genovese didn't mention Huawei Technologies Co. Ltd. : The general consensus here in Geneva, and across the industry in general, is that bankruptcy court approval wouldn't be forthcoming for any winning Huawei bid, should the Chinese vendor ever take part in a Nortel assets auction.

— Ray Le Maistre, International News Editor, Light Reading

Stevery 12/5/2012 | 3:54:48 PM
re: ITU: Ciena Bids $521M for Nortel's MEN

WTF, 521?  I think 420 would have been a more appropriate number.

mellonHead 12/5/2012 | 3:54:47 PM
re: ITU: Ciena Bids $521M for Nortel's MEN

but these guys always over pay.  World Wide Packets $200MM purchase price for what was (and I think still is) about $12MM in annual revenue.

Pretty sad group at CIEN but their ratios are getting better..... :)



Pete Baldwin 12/5/2012 | 3:54:47 PM
re: ITU: Ciena Bids $521M for Nortel's MEN

Nooooo, I think he's inferring something else.  :)

somedumbPM 12/5/2012 | 3:54:47 PM
re: ITU: Ciena Bids $521M for Nortel's MEN

Are you inferring the bidding will not go abaove 521?

paolo.franzoi 12/5/2012 | 3:54:46 PM
re: ITU: Ciena Bids $521M for Nortel's MEN


Step away from the bubbler Stevery!

In general, the price paid has been 2x the original bid so far.  So, $1B is a likely number if past performance predicts the future.



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