Tellabs board meets today to 'evaluate' offer for Ciena Linthicum company's shares recover $4.875 of Friday's 45% fall

August 25, 1998|By Shanon D. Murray | Shanon D. Murray,SUN STAFF

Tellabs Inc.'s board of directors is meeting today to "evaluate" the company's nearly $7 billion offer to buy Ciena Corp., as the Linthicum telecommunications equipment maker's stock began to recover from a 45 percent plunge Friday.

Shares in Ciena rose nearly 16 percent yesterday, closing at $36.125, up $4.875. Ciena was the third-most-active U.S. stock.

In its fall to $31.25 Friday, Ciena stock erased about $2.59 billion in shareholder value. That fall occurred after Tellabs and Ciena postponed shareholder votes on the purchase once AT&T Corp. announced that it won't be purchasing Ciena technology.

Shares in Tellabs dropped $4.375 yesterday to close at $58.0625, nearly erasing Friday's $5.1875 gain. The Lisle, Ill.-based company makes products that direct traffic on telephone networks.

The fallout from AT&T's announcement has caused analysts to speculate whether Tellabs will rescind its offer to buy Ciena, and if not, whether the terms of the deal will be renegotiated to reflect changes in the companies' respective stock prices.

The current proposal specifies a 1-for-1 stock swap, which gives Ciena investors one Tellabs share for each Ciena share.

"Ciena's rise in stock price says the deal will get done," said Patrick Houghton, an analyst with Wheat First Union in Richmond, Va.

"But, of course, it's all pure speculation at this point. With mergers, it's not over until its over," he said. "The deal does make strategic sense for Tellabs and tremendous sense for Ciena."

Tellabs president and chief executive, Michael Birck, agreed. On Friday, he said that buying Ciena would give his company the advantage of getting products out quickly.

Yet, analysts said they are convinced that the terms of the agreement would most likely be renegotiated.

Michael J. Balhoff, a telecommunications analyst and managing director for Legg Mason Wood Walker Inc. in Baltimore, said rumors put the discounted terms at 0.7 or 0.8 shares of Tellabs for each Ciena share.

But if Tellabs lowers its offer, other bidders could step forward, analysts said.

Cisco Systems Inc., the No. 1 computer networking equipment company, is pushing into the phone equipment market and it said in April that it would make its equipment compatible with Ciena's. Some saw the move as a prelude to buying Ciena.

Sweden's Ericsson AB has also said it wants to buy a bigger share of the U.S. phone equipment market.

Analysts' optimism increased after Ciena assured investors that it will meet 1999 sales targets, and that it was not counting on AT&T in its forecasts. Ciena officials spoke with analysts and investors late Friday.

"The deal is still on, but we're in the process of analyzing the AT&T news from Friday and evaluating what impact that may have," Charlie Long, a Tellabs spokesman, said yesterday.

The board meeting to review the acquisition plan is set for today in Chicago, Long said.

What comes out of that meeting will be news to Ciena officials, who said they are still in the dark regarding what Tellabs may do.

"We still would like the deal to go forth on the terms and conditions that were set," said Denny Bilter, a Ciena spokesman.

"Tellabs has not indicated to us one way or another, so we're basically waiting on them."

AT&T's news was apparently delivered to Ciena President Patrick Nettles less than an hour before Ciena and Tellabs were scheduled to hold separate stockholder votes on a planned $6.9 billion merger that was announced June 3.

Hastily, the two companies postponed the votes. Ciena's shareholder meeting has been reset for Sept. 9 at its Linthicum headquarters.

Pub Date: 8/25/98

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