Ciena's shares tumble again More doubts voiced about Tellabs deal as stock falls to $16.3125


September 11, 1998|By Mark Ribbing | Mark Ribbing,SUN STAFF

Shares of Ciena Corp. continued to fall yesterday as some analysts said the company's merger with Tellabs Inc. will either be renegotiated -- again -- or killed.

Ciena's shares dropped $3.4375, ending at an all-time low closing price of $16.3125. Yesterday's 17 percent decline followed a 30 percent plunge Wednesday.

Ciena's stock was trading at more than $80 a share as recently as July.

Ciena's slide has raised questions about whether Tellabs Inc. will go ahead with its purchase of the Linthicum-based telecommunications equipment firm.

The two companies have renegotiated their deal once, cutting the purchase price from $7.1 billion to about $4 billion.

The renegotiation came after Ciena issued a disappointing earnings estimate and announced that AT&T Corp. would not buy its products.

Wednesday's stock fall occurred after Ciena got beaten out on a $100 million contract with another customer.

"We think, given the sum total of what's been going on, that it makes sense for Tellabs to walk away from the deal," said Tim Savageaux of Volpe Brown Whelan & Co. in San Francisco. "The market's obviously telling us that the probability of the deal happening is fairly low, and I agree."

When asked if the Tellabs-Ciena deal will be completed, Tom Burnett of Merger Insight in New York said, "The market's saying it probably will not."

However, Burnett said, he thinks the deal can, indeed, go forward.

Tellabs would not comment yesterday.

Ciena's director of investor relations, Suzanne DuLong, said that for now, "things are proceeding as previously discussed."

The company had no further comment on the status of the acquisition.

Patrick Houghton of Wheat First Union in Richmond, Va., said that if the deal isn't renegotiated again, "they're going to have a hard time getting shareholder approval."

At the time the Tellabs-Ciena deal was announced June 3, the companies planned to swap their stock one-for-one, because the share prices of the two firms were about equal.

Since then, though, the firms' share prices have diverged sharply.

Under the terms of the renegotiation, each Ciena share would be worth 0.8 of a Tellabs share.

Analysts said that ratio may be too high. As of yesterday's close, a Ciena share was worth only 0.37 of a Tellabs share. Tellabs finished the day at $44, down 93.75 cents.

"Clearly, the market's voting that the deal won't happen at 0.8," said Paul Silverstein of BancBoston Robertson Stephens in New York.

Savageaux said he thinks that the proper ratio is about 0.5. "At 0.8, it certainly requires some renegotiation," he said. "I'm not sure these parties are up for another round of renegotiation."

Under the terms of the purchase, Tellabs will have to pay Ciena TC $100 million if it backs out. Savageaux said Tellabs may be willing to pay the penalty to get out of the deal.

"Frankly," he said, "given the amount of money they're talking about, spending $100 million doesn't seem like a lot."

Pub Date: 9/11/98

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