Ciena to Buy ONI Systems for $900 Million in Stock

Ciena Corp., the second-largest U.S. maker of fiber-optic telephone equipment, will buy rival ONI Systems Corp. for $900 million in stock and the assumption of $300 million in debt in a plan to add sales in one of the only rising communications-gear markets, Ciena spokesman Glenn Jasper said.

The bid values ONI shares, down 87% in the last year, at about $6.20, a 12% premium to Friday’s closing price.

Analysts expect both companies to lose money for two years as customers such as Qwest Communications International Inc. pare equipment spending. ONI is smaller than Ciena and specializes in gear that boosts capacity on citywide fiber networks, one of the few areas in which analysts expect spending to increase in 2002.

“I don’t think the near-term prospects for either company were that good,” said John Wilson, an RBC Capital Markets analyst who has a “sector perform” rating on Ciena and doesn’t own shares. “If the industry environment was anything close to normal, you probably wouldn’t see a deal like this.”

Ciena, based in Linthicum, Md., is expected to have a loss of 66 cents a share in the fiscal year ending in October and 31 cents the year after, the average estimates of analysts polled by IBES International Inc. San Jose-based ONI is forecast to have losses of 65 cents a share this calendar year and 50 cents in 2003.

ONI may catapult Ciena to first place in the market for network gear in metropolitan areas. ONI’s share fell to 26% in the third quarter from 34% in the second, according to Dell’Oro Group of Redwood City, Calif. Nortel Networks Corp. ranked first with 37%; Ciena was third with 22%.