Ciena Corp. reportedly being bought Linthicum firm's purchaser identified as Tellabs Inc.

Announcement awaited

$7.3 billion deal for company with '97 sales of $373 million

June 03, 1998|By Mark Ribbing | Mark Ribbing,SUN STAFF

Industry sources are speculating that Ciena Corp., a Linthicum-based telecommunications equipment firm, is being bought.

Rumors that Ciena would be taken over were fueled by a sharp rise in the company's stock yesterday and the settlement of its long-standing litigation with rival Pirelli SpA.

People close to the matter say that Tellabs Inc., another telecommunications firm, will buy Ciena for $7.3 billion in stock and leave Ciena shareholders in control of 35 percent of the combined company, the New York Times reported.

Ciena officials steadfastly refused to comment last night on the reported merger, but said there would be an announcement today.

If the deal is completed, it would mark the end of Ciena's remarkable rise as one of Maryland's most prominent independent high-technology firms. Founded in November 1992, the company got off to a lightning-fast start.

The company's first-year sales of $194.3 million were the highest for any start-up in history. Its sales broke the previous first-year sales record of $117 million held by Worlds of Wonder Inc., a now-defunct toy company that rode the fortunes of the once white-hot Teddy Ruxpin doll, said Goldman Sachs & Co. analyst Mary Henry.

Ciena's sales totaled $373.8 million last year, and it earned $112.9 million, or $1.09 per share.

When it went public in February 1997, Ciena set a record as the most valuable U.S. start-up company ever, measured by its value at the end of its first day of trading. Ciena's $2.3 billion valuation was the highest ever seen for a venture-backed debut.

What drove this phenomenal growth was a technology whose time had come. The company makes equipment called dense wavelength division multiplexers, which split one channel of fiber-optic light into several, creating new channels for communications.

This product helped answer the industry's growing need for network capacity, which was fueled by the explosive growth of the Internet and other communications technologies.

As the need for DWDM technology grew, so did the competition to provide the service. Ciena has encountered increasingly stiff combat for market share from telecommunications firms like Pirelli and Lucent Technologies Inc.

Ciena stock, which has generally enjoyed fawning treatment on Wall Street, took a beating in January when Lucent announced it would offer a product that expands one communications channel into 80. At the time, Ciena's top product could expand one channel into 16. Since then, however, Ciena has begun selling multiplexers that could offer 40 and eventually as many as 96 channels.

In February, Ciena stock took another dive when it indicated that one of its major customers, telephone and Internet company WorldCom Inc., was going to delay some orders.

The stock plunge was a telling sign of Ciena's over-reliance on two customers; between them, WorldCom and Sprint Corp. had accounted for more than 90 percent of Ciena's revenue.

In the months that followed, Ciena began to piece together a more diverse client base.

Tellabs, founded in the mid-1970s, grew to $1.2 billion in revenue last year from $494.2 million in 1994. The company makes equipment that allows circuits to communicate with each other without being soldered together.

Once the deal is completed, it is expected that Ciena shareholders will own about 35 percent of the company, which reportedly will be located in Lisle, Ill., and keep the Tellabs name.

It was unclear last night how Ciena's local operations might be affected.

Pub Date: 6/03/98

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