Only two days after officially announcing that they were in advanced discussions with Nortel about buying its Metro Ethernet Networks (MEN) division, Ciena (NASDAQ:CIEN, news, filings) came through with a deal. However, it’s not exactly the deal that had been mentioned before, they aren’t buying the entire MEN division – just most of it. Ciena has agreed to buy the Carrier Ethernet and optical transport portions of Nortel’s MEN for $390M in cash and 10M shares of stock, for a total of $521M at current prices. But of course, it’s not a done deal yet since this is bankruptcy court. Ciena therefore is the stalking horse bidder, and there will be an auction of some sort. Since the assets to be carved out are those that fit Ciena best, they are probably in a good position to win that auction – but who knows what the final price will be.
If the deal does go through, then it will more than double the size of the company. These Nortel assets did $556M in revenue in the first half of the year, which probably puts the current revenue run rate in the ballpark of $1B. More than 2000 employees would be transferred to Ciena’s current workforce of just over 2000. Ciena anticipates some $180M in integration costs, mostly hitting the books in 2010, with the acquisition being significantly accretive in 2011 and thereafter. It’s a big step for Ciena, but despite the market’s jitters over risk as mergers go this one is strategically smart. You can’t go around taking no risks in life and expect to get anywhere.
I’m curious what’s left that Ciena is not buying. According to the SEC filings, the entire MEN division did $693M in the first half, which leaves products generating $137M in the first half unaccounted for. Does anybody know what product lines those might be? And why Ciena doesn’t want them, or Nortel thinks someone else will value them more highly?
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