Tellabs silent after huddle Ciena shares, up most of day, close $2 lower

Will deal be altered?


August 26, 1998|By Shanon D. Murray | Shanon D. Murray,SUN STAFF

A Tellabs Inc. board meeting to review the proposed acquisition of Ciena Corp. ended yesterday without the company's releasing any information on its intentions.

The meeting had been called after Tellabs and Ciena postponed their shareholder votes Friday, after AT&T Corp. announced that it would not buy technology from Ciena, the telecommunications equipment maker based in Linthicum.

The votes to approve or reject the acquisition -- which was originally valued at $6.9 billion, but would be worth about $5.95 billion at current prices -- have been reset for Sept. 9.

"We're talking about quite complicated negotiations; Tellabs is playing this close to the vest, and that's an appropriate response on the part of management," said Michael J. Balhoff, a telecommunications analyst and managing director for Legg Mason Wood Walker Inc. in Baltimore.

"Obviously, market conditions are in flux for Ciena," he said. "Tellabs wants to be prudent about the investment it would be making."

Tellabs' silence "is not unexpected, given how the market reacts to any bit of news, even more so in this particular case," said Richard Church, an analyst with Merrill Lynch Global Securities in New York.

Ciena officials declined to comment on the Tellabs board meeting in Chicago.

On Wall Street yesterday, Ciena shares traded higher for most of the session before weakening to close at $34.125, down $2. Ciena's stock had lost nearly $2.59 billion in shareholder value Friday when it fell 45 percent.

Tellabs also traded on the positive side for much of yesterday only to end the session at $58, down 6.25 cents.

The stock action suggested investor doubts about the deal, although some analysts still are optimistic that it will go through.

"It's premature to make decision or judgment one way or another," Balhoff said. "I still would not be surprised if the deal happens, but at a lower price."

Analysts said they expect that the terms of the deal will be renegotiated to reflect changes in the companies' stock prices.

The current proposal specifies a one-for-one stock swap, which would give Ciena investors one Tellabs share for each Ciena share. Discounted terms would put the swap at a percentage of a Tellabs share for each Ciena share.

The Lisle, Ill.-based Tellabs makes products that direct traffic on telephone networks. Ciena makes devices that allow phone lines to handle more phone calls, Internet messages and other communications.

"The highest probability says the deal will happen," said Patrick Houghton, an analyst with Wheat First Union in Richmond, Va. "In the meantime, there will be all kinds of movement by Ciena's stock between now and Sept. 9."

Pub Date: 8/26/98

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