Ciena shares rise $2 in wake of Friday sell-off Sale to Tellabs could help stabilize stock

Approval of deal expected


August 18, 1998|By Mark Ribbing | Mark Ribbing,SUN STAFF

After losing 24 percent of its value Friday, Ciena Corp. stock staged a modest rally yesterday. Shares of the Linthicum maker of telecommunications equipment closed at $56.125, up $2.

Analysts said the stock will stabilize and that the company's pending acquisition by Tellabs Inc. is likely to be approved.

Ciena's dive last week came after the company released disappointing earnings estimates for its fiscal third quarter.

The company said a $25 million order had been delayed, and that another customer had been given a price cut in return for purchase commitments.

Analysts said yesterday that these were temporary problems for Ciena and that the stock market overreacted to them.

"We think the events are a one-quarter phenomenon, and we expect things to improve going forward," said Richard Church of Merrill Lynch & Co. Inc. in New York.

"I think people have come to realize that a lot of the turbulence on Friday was overdone," said Michael S. Davies of Punk, Ziegel & Co. in New York.

The stock fall prompted speculation that Tellabs' purchase of Ciena might not win the approval of the companies' shareholders, who will vote on the deal Friday. Tellabs and Ciena structured the acquisition as a one-for-one stock swap, and Tellabs shareholders could be reluctant to exchange their stock for weakened Ciena shares.

Tellabs closed at $58.5625, up 43.75 cents.

Analysts said the acquisition will proceed. They said Lisle, Ill.-based Tellabs is keenly interested in Ciena's products, which allow phone networks to handle more calls and Internet messages. Tellabs makes gear that manages calls and messages as they move along networks.

"I truly believe the deal will be completed; Tellabs needs it strategically to enhance its market opportunity," said Davies.

"I don't think it'll be derailed; I think for sure it'll go ahead," said William D. Rabin of J. P. Morgan Investment Management Inc. in New York. "Strategically, it makes so much sense for both of them."

Even after yesterday's upturn, Ciena shares are trading for far less than last month, when they were soaring above $80.

One factor that could protect Ciena from another plummet is its relationship with Tellabs. Because the two stocks may soon be traded one-for-one, Tellabs' relative strength can keep Ciena from falling too far.

"As long as Tellabs is more or less maintaining a certain price level, Ciena will maintain its level and more or less track the underlying movement in Tellabs shares, which was the case prior to this jolt last week." said Andy Schopick of Nutmeg Securities Ltd. in Westport, Conn.

Amid its other announcements, Ciena said Friday that its gross earnings for the six-month periods that ended April 30, 1997, and April 30, 1998, were reported inaccurately in a proxy statement filed by Tellabs. Officials of the two companies said the mistake was a clerical error.

Pub Date: 8/18/98

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