Ciena delays merger vote 2nd postponement of poll on Tellabs deal

shares drop 15%


September 03, 1998|By Shanon D. Murray | Shanon D. Murray,SUN STAFF Bloomberg News contributed to this article.

Shares in Ciena Corp. fell 15 percent yesterday after it announced that its shareholders won't vote on its $3.94 billion merger with Tellabs Inc. until mid-November.

The Linthicum-based telecommunications equipment maker's shares fell $5.1563 to close at $28.4608. Shares in Lisle, Ill.-based Tellabs, which also set its shareholder vote for mid-November, fell $2.75 to close at $43.75.

The companies said setting the vote for November will allow time for shareholders and the U.S. Securities and Exchange Commission to review the new terms.

Yesterday, analysts said the two-month delay gives Tellabs time to consider Ciena's fourth-quarter results, exposing the deal to more jeopardy. Ciena has already said its third-quarter earnings would be less than half of estimates.

The companies said they haven't decided when Ciena's results for the fourth quarter, which ends Nov. 1, will be released.

"Ciena management would probably prefer a shorter postponement. As it stands now, the company needs something good to happen," said Rebecca Guthart, an analyst with Proxy Monitor, a New York-based research and proxy voting agency for institutional investors.

"Unless Ciena finds a new customer in that space of time or otherwise improves its prospects, [the delay] may prove a jeopardy factor while Tellabs investors will have the time to look at the relationship between the stock prices," she said.

Ciena is cutting equipment prices to hold on to customers and fend off bigger rivals like Lucent Technologies Inc., the top seller of phone equipment in North America. Tellabs said profit margins in Ciena's business will be hurt as a result.

This is the second postponement of the vote, which was initially set for Aug. 21, then was reset for Sept. 9 after AT&T Corp. announced it would not buy Ciena products.

Tellabs and Ciena reaffirmed the merger with new terms last Friday, adjusting the swap to 0.8 Tellabs share for each Ciena share. The original deal, announced June 3, called for a %o one-for-one swap. The value of the deal, initially $7.1 billion, has been reduced by 44.5 percent to $3.94 billion.

The boards of directors of both companies have approved the new deal and unanimously recommend its approval by their respective stockholders.

The companies said last week the purchase is expected to cut Tellabs earnings by 5 to 6 cents a share in the third quarter and as much as 7 cents in the fourth quarter.

L Earnings for 1999 could also be reduced as much as 15 cents.

Scott Vergin, money manager at Lutheran Brotherhood, which owns 636,000 Tellabs shares, said Tellabs should have further cut the price it will pay for Ciena.

"It should be reduced to 0.7 of a share or less so it wouldn't be dilutive next year," he said.

According to a filing with the SEC, the new agreement calls for Ciena to pay Tellabs a $200 million penalty if it walks away from the sale, while Tellabs would pay Ciena $100 million if it backs out.

Pub Date: 9/03/98

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