An investor buys Ciena, drops AT&T Reaction: For Ciena stockholders, these are the times that test an investor's loyalty.

August 26, 1998|By Mark Guidera and Bill Atkinson | Mark Guidera and Bill Atkinson,SUN STAFF

Bruce Lancaster has done two things he's proud of since Friday: He bought 100 more shares of Ciena Corp. stock and, in an act of defiance, canceled his long-distance service with AT&T.

The firefighter is among the hundreds, if not thousands, of loyal small investors in Ciena reeling from a sudden turn of events for the Linthicum-based communications equipment maker -- and their humble stock portfolios.

Friday, the stock fell like a rock, dropping 45 percent to close at $31.25 on news that AT&T Corp. had ditched plans to buy Ciena equipment. That threw into tailspin a planned one-for-one stock merger with Tellabs Inc. And it set more than a few investors' blood to boiling.

Lancaster, a 25-year veteran of the Howard County Fire Department, said he felt so burned by the timing of AT&T's announcement that he decided to cancel his long-distance telephone service with the telecommunications giant. Yesterday, he filed a complaint with the Securities and Exchange Commission.

"Somebody ought to hang for this," said Lancaster, upset that AT&T waited until just an hour before a planned Ciena shareholders meeting to vote on the merger to inform Ciena President Patrick Nettles of its decision to call off tests of equipment which allows communications carriers to send more data over a single fiber.

Lancaster is planning to switch his long-distance service to Sprint -- one of Ciena's largest customers for its multiplexing bandwidth equipment.

"I'm not a radical kind of guy or anything, but the least I can do is take my business away from AT&T," he said. "It won't sink the company, but it makes me feel better."

Lancaster, who owns 400 Ciena shares along with his wife and mother, is one of many small investors who bought the stock soon after it went public in February, 1997, and have hung on for what has been a roller-coaster ride that has, for the most part, lurched skyward.

Just last month, on July 20, shares in Ciena closed at an all-time high of $88.625.

The low for the stock: $22.50 on April 23, 1997.

Despite the sometimes volatile nature of the investment, Lancaster remains a loyal investor.

His love affair with the company as an investment began unconventionally on a fire safety visit to Ciena's former headquarters in Savage.

"I'd never seen so many happy employees. They were joking around saying, "If you're looking for something on fire, it's this company,' " the firefighter recalled.

They had reason to gloat: Its initial public offering had the highest first-day valuation ever seen at the time for a company funded by venture capital.

Since purchasing his first 100 shares at $42.125 a share, Lancaster has at times been "pleased and displeased" with its performance. Since then, he's added 300 more shares to the family portfolio.

Lancaster said he was braced for volatility when he bought the stock; he even passed up selling the stock when it briefly hit a high above $92 July 21.

Other small investors wish they'd bailed out of the Ciena roller coaster ride, like Wesson Miller, a Baltimore County resident. He also bought shares -- he won't say how many he holds -- soon after the February 1997 IPO. Now, with the Tellabs deal likely to be revalued at a lower share price, he feels robbed.

"I feel like AT&T bomb-shelled the whole thing," said Miller.

As did Lancaster, Miller said he'll now hang on for the long-term in the hope that the Tellabs deal will go through.

Yesterday, Tellabs' board of directors met to discuss the merger but subsequently issued no announcement. That sent Ciena tumbling late in the day, to close at $34.125, down $2.

Even some seasoned professional investors say they are staying the course.

"This is not a woe-is-me type of situation," said Christopher Baggini, principal at Baltimore-based Allied Investment Advisors, which manages $12 billion in assets.

"We still think it holds a lot of promise with the price down at this level. It might just be a good investment for shareholders to stand pat and wait for the company to prove that there is life after AT&T."

Allied also felt the sting of Friday's dramatic share price drop.

The institution bought about 340,000 shares of Ciena in the $43 range in February, and recently sold 10 percent of its holdings in the mid-$80 range for a tidy profit of more than $1 million.

But its remaining Ciena holdings have fallen about $1.8 million in value since acquired. "It has been aggravating," said Baggini.

Like Lancaster and Miller, he too was stunned by AT&T's announcement -- and perplexed by its timing.

"There has been a lot of speculation about" the announcement, he said. "The only facts that we know leave a lot of holes to fill."

AT&T has declined further comment on the announcement. Nettles, the Ciena president, has declined to speculate why AT&T made its decision when it did, but has said he is baffled and troubled by it.

There are those investors, of course, who are breathing sighs of relief that they sold off Ciena holdings rather than await the Tellabs deal or the AT&T decision.

"I learned a long time ago that you sell when everybody else is buying," said Gerald Scheinker, a Legg Mason Wood Walker Inc. broker based in Pikesville who invested money for four clients in Ciena.

Scheinker said all of his clients made money in the stock; one made more than $30 a share. That investor, he said, bought Ciena shares at $54.625 on July 29, 1997, and sold them July 17, 1998, at $85.25.

Scheinker advised the investor to sell because much can happen between the time a merger is announced and it is completed.

"When you see big moves, you take advantage of them and lock in the gains," he said.

Scheinker's said he's now bullish on large-cap stocks that have taken their own tumbles recently, such as Minnesota Mining and Manufacturing Co., Travelers Group Inc. and E.I. du Pont de Nemours and Co.

Pub Date: 8/26/98

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