Ciena Begins New Era, Outbids Nokia for Nortel Assets

November 23rd, 2009 by · Leave a Comment

According to various reports over the weekend, Ciena (NASDAQ:CIEN, news, filings) has won the auction for Nortel's optical networking and carrier ethernet businesses.  The company apparently raised its earlier stalking horse offer all the way to $769M, made up of $530M in cash and $239M in convertible notes, just barely edging out the team of Nokia Siemens and One Equity Partners.  Nokia of course felt its offer was fair value, but of course value is in the eye of the beholder and Ciena simply has more to gain here.

The purchase seems quite likely to go through, and when it does Ciena will begin a new era.  While the Nortel units in question have been bleeding revenue due to the combination of the economy and their own uncertain future, they are still turning over $1B in revenue annually which is more than Ciena currently has.  It will also take half of the company's current cash stockpile to complete the deal at a time when the economy is rebounding but has not yet rebounded.

The integration task ahead of them will be a major challenge, but Ciena certainly knew that going in.  Nortel has some great technology and great people, but it also has lots of operational baggage.  Separating the two will take years, and it will not be fun.  Especially for the Nortel units, which faced cuts no matter who won the auction but were probably rooting for Nokia Siemens.

All that sounds like I'm negative on the purchase, but the opposite is true.  This a bold step by Ciena, and while it entails risk I think that it is one that strategically they needed to make.  Analysts will now issue reports all over the place iterating all the risks they are now taking.  But I guarantee you if they had not won the auction, the same analysts would have been referring to this for the next 5-10 years as a missed opportunity that will never recur.

You can do all the analysis you want on a deal like this, but the future will be foggy nonetheless.  Sometimes you just have to give it a whirl.

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Categories: Mergers and Acquisitions · Telecom Equipment

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