Shareholders of Ciena Corp. approved yesterday a deal to buy a California telecommunications company, and the Linthicum company announced that 335 workers will be laid off as the two businesses become one.
Gary B. Smith, Ciena's president and chief executive, also said revenue of the combined company could be down significantly for its fiscal third quarter, when compared with Ciena's stand-alone second quarter revenues. Ciena's fiscal third quarter ends July 31.
"Both Ciena's and [ONI Systems Corp.'s] businesses have been affected dramatically by the unprecedented decline in carrier spending," Smith said. "However, we firmly believe that together we are stronger and better positioned to emerge a winner."
Ciena agreed to buy the fiber-optic equipment maker in a stock and debt deal valued at about $743 million. ONI shareholders also approved the acquisition yesterday.
The deal, which is expected to close Friday, is Ciena's most important acquisition because ONI is a publicly held company with commercially available products and about 30 customers, said Glenn Jasper, a Ciena spokesman.
With 650 employees, ONI is also the largest company Ciena has bought. Ciena had about 2,300 employees at the end of March.
About 80 of the layoffs will come from current Ciena employees, the company said. About 225 of the layoffs will be effective today, while another 110 will be let go over the next three months.
The layoffs will be made at a time when the telecommunications sector is fraught with problems. Several companies in the sector have filed for bankruptcy protection or announced job cuts in recent months.
Ciena disappointed Wall Street last month when it reported a net loss of $612.2 million, or $1.86 a share, on revenue of $87.1 million for the second quarter, which ended April 30.
The company's stock hit what was then a 52-week low of $5.90 the day those numbers were announced.
Shares of Ciena fell 40 cents yesterday to close at $4.40. Shares of ONI fell 34 cents to close at $3.09.
Yesterday's announcement was made after the market closed.
Under terms of the deal, ONI shareholders will get 0.7104 shares of Ciena stock for each of their ONI shares. Based on yesterday's closing price, that puts the value of the deal at $443 million in stock. Ciena will also assume $300 million in ONI debt.
ONI had revenue of $21 million for the first quarter, which ended March 31. Cash, cash equivalents and marketable securities totaled $667 million at the end of the quarter.
As the two companies combine, Ciena said, the job cuts and other cost-cutting measures are expected to save $55 million to $65 million a year in operating costs.
Despite the recent cutbacks by Ciena and other companies in its industry, analysts said the ONI deal is a good one.
"If you want to be long-term survivor and if you've got the balance sheet, this is a great time to really bolster your strength," said Rick Schafer, a research analyst for CIBC World Markets in Denver.
Schafer added, however, that the company's warning that third-quarter revenue could be down substantially was worse news than expected.
Simon Leopold, a telecommunications equipment analyst and a vice president for Merrill Lynch & Co. Inc. in New York, said the acquisition "makes perfect sense."
Ciena's technology focus is making equipment for long-haul fiber-optic networks. It also makes switches, which drop off and pick up data traveling on the network.
ONI brings to Ciena a new line of products that carry information on light beams around metropolitan areas. ONI's technology allows carriers to pack more information onto a single fiber by carrying the data on light beams of different colors.
"Rather than having Ciena go and build a brand new product, they essentially buy an existing product that has some traction," Leopold said.
The market for the metropolitan-area technology Ciena is acquiring is worth about $500 million, and the overall market for equipment in metropolitan areas is about $10 billion, he said. "If you were Ciena and you wanted to get into this game, ONI is a good way to do it."