Ciena Corp., the Linthicum maker of fiber-optic equipment, said yesterday that it had closed a deal to buy a California telecommunications company for $697.8 million in stock and debt.
The deal to buy ONI Systems Corp. of San Jose, Calif., marks the first time Ciena has bought a publicly held company. ONI Systems also has a commercially available product and 30 customers, making it the most mature company Ciena has acquired, said company spokesman Glenn Jasper.
The acquisition, which closed Friday, brings to Ciena a company with a focus on technology for metropolitan areas. Ciena's focus has until now been on technology for long-haul networks, which connect different cities, and the switches that drop off and pick up data traveling on the networks.
"Strategically, it makes a lot of sense because it really bolsters the metro offering from Ciena," said Rick Schafer, a research analyst for CIBC World Markets in Denver. Schafer added that the acquisition is consistent with what's happening across the telecommunications industry. "I think you're going to see a lot of consolidation over the next 12-18 months," he said.
The telecom sector was hit hard as the economy slowed, and it continues to struggle. Several companies - including Ciena - have announced cutbacks and layoffs in recent months. Ciena has had three rounds of layoffs since November, cutting about 1,430 jobs. The company said last week that it would lay off another 335 workers as a result of the ONI acquisition. Ciena laid off about 225 workers last week as the two companies began combining their operations; another 110 will be let go over the next three months.
Jasper said the fact that the ONI acquisition is such a big one should give carriers a vote of confidence that Ciena will be able to ride out the storm.
"One of the things that incumbent carriers care about is they want an equipment provider that has a certain amount of maturity to it," Jasper said. "They want to make sure that they're going to buy product from a company that's going to be around."
Ciena took about $300 million of ONI's debt in the deal. The Linthicum company also acquired all outstanding shares of ONI for about 100.7 million shares of Ciena common stock. ONI Systems shareholders got 0.7104 share of Ciena stock for each outstanding ONI Systems share.
When the company announced the forthcoming acquisition in February, the deal was valued at about $900 million in stock plus the $300 million in debt. But Ciena's stock price has since fallen.
Shares hit a 52-week high of $43.15 in June 2001, and a 52-week low of $3.78 on Friday.
Shares of Ciena closed yesterday at $4.11, up 16 cents.