Ciena shares dive 30% to all-time low $8.5313 fall to $19.75 is caused by loss of DTI job to Pirelli

Did Wall Street overreact?

Tellabs won't say if it still plans to buy Md. company


September 10, 1998|By Mark Ribbing | Mark Ribbing,SUN STAFF

Ciena Corp. shares plummeted to an all-time low yesterday after one of its customers awarded a $100 million telecommunications equipment contract to one of the Linthicum-based company's rivals, raising further questions about whether Tellabs Inc.'s purchase of Ciena will go forward.

Ciena stock fell $8.5313 to $19.75, the lowest closing price since Ciena began trading on Feb. 7, 1997, at $23 per share. The stock lost 30 percent of its value yesterday, and has suffered a stunning 68 percent decline since the Tellabs-Ciena deal was announced June 3.

Yesterday's decline came on the news that Digital Teleport Inc. had chosen Pirelli SpA as the primary supplier of dense wavelength division multiplexing -- or DWDM -- equipment, which allows phone lines to carry more calls and Internet messages.

Ciena had won a $13 million contract with DTI in April, and had put in a bid to win a larger share of the St. Louis-based telecommunications company's DWDM business.

Pirelli's victory marked another chapter in the sharp, summer-long decline of Ciena's stock.

On June 3, Ciena proudly announced that it would be bought by Lisle, Ill.-based Tellabs in a stock swap initially valued at about $7 billion. At that time, Ciena was trading at around $60 a share. Since then, Ciena has suffered one reversal after another.

Its stock fell 24 percent Aug. 14 due to a disappointing earnings estimate, and another 45 percent on Aug. 21 after AT&T Corp. decided not to buy any Ciena products. The AT&T decision caused Tellabs to put off its acquisition of Ciena, and the companies have since reduced the amount that Tellabs would pay for Ciena to about $4 billion.

Now, some analysts wonder if Tellabs will be willing to pay even the reduced price. "It's not a very positive situation," said Andy Schopick, an analyst at Nutmeg Securities Ltd. in Westport, Conn. "The way it's unfolding, it raises questions about what's really happening with the Tellabs deal. It raises questions about whether Tellabs will go ahead with the merger or come back and revise the terms."

Tellabs declined to comment on yesterday's events or on their possible impact on the Tellabs-Ciena deal. Tellabs shares finished at $44.9375, up $1.50.

Ciena officials said Wall Street was overreacting to the Pirelli-DTI deal. Larry Huang, the company's senior vice president for sales and marketing, said the three-year contract isn't very large by industry standards, and that the Italian giant Pirelli won out mainly because it could afford to offer sweeter financial terms.

"We have a competitor who's essentially been locked out of the U.S. market and is in a fairly desperate situation right now," Huang said of Pirelli.

Huang feels that Ciena isn't getting a fair shake in the investment markets. "We've been beaten up pretty badly, and any hint of bad news gets amplified," he said.

Nutmeg Securities' Schopick said there is some truth to this. When it comes to Ciena, he said, "Whatever news there is which hasn't been positive is getting exaggerated."

Analysts and Ciena officials pointed out that DTI has planned for some time to bring in another equipment vendor to reduce its reliance on Ciena, and that such a practice is normal in the telecommunications sector.

However, some observers said Ciena was expected to win a larger slice of DTI's business. Chandan Sarkar, an analyst with SoundView Financial Group in Stamford, Conn., said the size of Pirelli's share "surprised a lot of people, and I think it surprised Tellabs."

Pirelli spokesman Lee Bussell said his company won the DTI bid because it could offer more services. In addition to selling DWDM, Pirelli also makes telecommunications cables.

Bussell said Pirelli "was able to convince DTI that it would be to its advantage to have a single supplier for the cables and the DWDM."

Pub Date: 9/10/98

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