In a bold, dicey attempt to grow its way back to strength, Linthicum telecommunications equipment maker Ciena Corp. said yesterday that it will buy two untested private companies in separate all-stock deals initially valued at a combined $981 million.
By shelling out 20.6 million of its shares for Lightera Networks Inc. of Cupertino, Calif., and another 16 million shares for Marlborough, Mass.-based Omnia Communications Inc., Ciena is putting about 25 percent of its stock on the line in return for two businesses that are each less than 2 years old and have yet to make a nickel.
Analysts said yesterday's announcement makes it unlikely that another company will buy Ciena, which had itself been the subject of persistent takeover rumors. Any bid for Ciena will now have to take into account the merits and vulnerabilities of Lightera and Omnia.
"I think this definitely reduces the probability of Ciena being bought out," said Timothy Savageaux of Volpe Brown Whelan & Co. in San Francisco.
Ciena shares fell $2.0625 yesterday, closing at $24.75.
What makes Ciena's costly move particularly striking is its own recent history of turmoil. Last year, the company's torrid growth fizzled amid lost sales opportunities and disappointing financial reports.
The troubles were severe enough to cause equipment giant Tellabs Inc. to reduce its $7 billion bid for Ciena and ultimately cancel the purchase altogether.
Yesterday's acquisitions represent Ciena's attempt to change its image as a one-trick pony. The company is a leading maker of gear that allows fiber-optic networks to carry more calls. However, unlike bigger equipment firms like Tellabs or Lucent Technologies Inc., Ciena could not offer other network services, such as managing call traffic.
Lightera's switches will allow Ciena to manage that traffic, while Omnia's equipment will link businesses and other users of communications to fiber-optic networks.
Ciena President and Chief Executive Officer Patrick H. Nettles drew a contrast between last year's attempted merger with deeply established Tellabs and the current bid for start-ups Lightera and Omnia.
"In this case, we are completely unfettered with traditional telephony equipment," Nettles said. "All the companies [in yesterday's deals] are young and entrepreneurial by nature." Jagdeep Singh, Lightera's president and chief executive officer, said, "Lightera and Ciena share the same vision of building a simpler, more efficient, lower-cost network."
Nettles said no layoffs are expected to result from the deals, which were initiated by Ciena. He added that the two acquired companies -- which each employ about 80 people -- will both be adding jobs, though Nettles declined to say how many.
The management of Lightera and Omnia will be kept intact, with Singh taking on an additional role as a director of Ciena.
Nettles said the companies' operations will generally remain where they are, though the sales and marketing forces of the three firms will be integrated, with manufacturing operations merged over time.
The Lightera acquisition is expected to close by the end of next month, with the Omnia purchase expected to follow suit in June or July. Nettles said he anticipates $13 million in merger-related charges.
Analysts were divided in their assessments of Ciena's purchase of the two companies. "I think it's a very, very good idea. The product lines are synergistic, and the companies make Ciena strategically much more powerful," said Steven D. Levy of Lehman Broth- ers Inc. in New York.
"It broadens the product line. That, in a sentence, is the significance to Ciena," said William Magill of NationsBanc Montgomery Securities in San Francisco.
"I think both companies they're acquiring hold a lot of promise and look like legitimate participants in the telecommunications infrastructure markets," Magill said.
As yesterday's stock dip suggests, though, not everyone was cheery about Ciena's purchases. "These are very early-stage companies, and they've paid about a billion dollars. I think [Ciena] dramatically overpaid for these companies," said Volpe Brown's Savageaux.
"We're talking about a company [Ciena] in the midst of a turnaround itself. It's very risky," Savageaux said.
Savageaux added that he thought the companies' expectations of garnering merger-related revenue as soon as next year was "extremely aggressive" and probably unattainable.
Regardless of how they felt about the wisdom of the deals, analysts agreed that Ciena picked a good time to use its shares as buyout currency. After tumbling last year from a July 20 all-time high close of $88.625 to an Oct. 14 nadir of $8.1875, Ciena's stock has enjoyed a modest rebound, thanks to new sales contracts and merger speculation.
Nettles said Ciena has "no specific plans" to make further purchases of smaller companies, but added, "I wouldn't rule it out."
Pub Date: 3/16/99