Ciena beats NSN to buy Nortel's businesses for $769 mln

Mon Nov 23, 2009 12:02pm EST
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By Tarmo Virki and Anupreeta Das

HELSINKI/NEW YORK (Reuters) - Ciena Corp agreed to buy the optical networking and ethernet equipment businesses of bankrupt Nortel Networks for $769 million after trumping a bid from Nokia Siemens Networks.

The deal, which ends a three-day auction, will vault Ciena to third place in the optical network equipment market, boosting it against bigger rival Alcatel-Lucent and Huawei Technologies Co.

But Ciena shares were down nearly 9 percent as investors worried about how the U.S. network equipment maker will integrate the new assets, which are expected to double Ciena's size, and how it will cope with an increased debt load.

Ciena agreed to pay $530 million in cash and $239 million in 6 percent senior convertible notes due 2017 for the assets.

Morgan Keegan analyst Simon Leopold downgraded his Ciena rating to "market perform" from "outperform" after the news. He said the winning bid was above his $400 million to $750 million valuation range for the assets and "appears as a win at all costs approach" from Ciena.

"We feel that Ciena is assuming too much risk and degrading its balance sheet," Leopold said. "It will take time before there's sufficient evidence to assess whether it's a success for failure."

Ciena Chief Executive Gary Smith defended the deal. "It is a large integration (but) made easier by the fact that it's such a good fit," Smith said in an interview. "It's incredibly complementary on terms of technology, people and customers."

The deal is structured to give Ciena flexibility in managing the debt it will take on, Smith added.   Continued...

<p>A sign is pictured outside Nortel's Carling Campus in Ottawa August 10, 2009. REUTERS/Blair Gable</p>