Tellabs to Acquire Ciena for $7.1 Billion

Tellabs Inc. agreed on Wednesday to buy Ciena Corp., the top maker of devices that boost phone-network capacity, for $7.1 billion in stock to better compete with Lucent Technologies Inc. in the booming equipment market.

Tellabs’ products direct traffic on networks while Ciena beefs up those networks so they carry more calls and data. Just Tuesday, Sprint Corp., one of Ciena’s biggest customers, said it spent more than $2 billion on network enhancements to offer voice, video and data simultaneously on a single phone line.

Bell Atlantic Corp. and others are buying more equipment to handle the data and Internet traffic that’s outpacing traditional phone calls. Tellabs, which has strong relationships with the Baby Bells, needs to offer a fuller line to persuade them not to jump ship for Lucent, Northern Telecom Ltd. and other big rivals.

“It positions Ciena and Tellabs better relative to Lucent,” said Joseph Noel, an analyst at Hambrecht & Quist in San Francisco.

Lisle-based Tellabs will pay one share for each Ciena share. At Tellabs’ closing price of $65.88 Tuesday, Ciena holders will get a 14% premium to Ciena’s close of $57.56.

Savage, Md.-based Ciena’s stock rose $4.19 to close at $61.75 in trading of 22.1 million shares, making it the second-most active U.S. stock. Tellabs fell $2.06 to $63.81. The company expects the purchase to reduce earnings in 1998 but not in 1999, excluding transaction costs of about 17 cents a share.

It wouldn’t be the first time the value of an acquisition fell and the purchase still went through. Network equipment maker Ascend Communications Inc. unveiled its plan to buy Cascade Communications Corp. in March 1997 with stock valued at $36.40. That fell to $30.63 when the purchase was completed on June 30, dropping the price to $2.8 billion from $3.7 billion.

Still, not many expect that to happen. Tellabs shares were the second-best performing in the Standard & Poor’s 500 index during the last five years, outpaced only by Dell Computer Corp.

“This will make Tellabs a top player,” said Nikos Theodosopoulos at UBS Securities, who rates Tellabs a “buy.”

The acquisition is good news for Ciena investors too. They watched shares fall as much as 30% to $37.25 in February after the company said WorldCom Inc. was delaying orders until it completes its purchase of MCI Communications Corp. WorldCom and Sprint accounted for 95% of Ciena’s revenue in 1997.

Ciena shares climbed $6.19 Tuesday amid speculation about a takeover offer and trading in its stock options surged.

Ciena’s equipment uses so-called wavelength division multiplexing technology that splits light beams on fiber-optic cables into several colors, letting one strand of glass carry as much as 40 times more information. The market for the equipment is surging 60% a year and will reach $10 billion in sales by 2001, according to brokerage BancAmerica Robertson Stephens in San Francisco.

Goldman, Sachs & Co. advised Tellabs on the purchase, while Morgan Stanley represented Ciena.