Tellabs Inc. and Ciena Corp. last week each saw their stock hit new 52-week lows after announcing they had scrapped plans to merge after a spate of bad news for Ciena.
Tellabs, which had been trading as high as $93.13 on July 21 sank to $36 Sept. 14 and was trading around $40 at press time. Ciena also peaked July 21 at $92.38 and fell all the way to the $11 range late last week.
Terms of a termination agreement approved by both companies’ boards of directors specify that neither company will owe a break-up fee.
“We continue to believe that Ciena’s products and technology would have provided a good fit with Tellabs’ business,” said Michael J. Birck, president and chief executive officer of Tellabs. “However, in light of changes in Ciena’s financial outlook and since required approval of the transaction by Tellabs’ shareholders is unlikely, we have therefore mutually agreed to terminate the merger agreement.”
In a conference call with analysts, Birck said Tellabs would not rule out looking for other partners or even a new agreement with Ciena down the line.
“I anticipate that when the dust settles, we’ll go back to Ciena to see if areas short of a marriage allow us to make use of some of the technology we’ve now become pretty fond of and perhaps allow some of our resources and excesses to be made available to Ciena,” said Birck.
“I can tell you that nobody at Tellabs is overjoyed by this turn of events,” said Birck. “We have great respect for the kind of technology Ciena has brought to the market, and we still do think they are a leader in that technology. We also recognize that they face a very difficult market situation, at least in the near-term, as some of the larger participants in that market attempt to get some market share and get their foot in the door.”
The planned merger hit a significant speed bump Aug. 21 when Ciena lost out on a contract from AT&T Corp. for its dense wavelength division multiplexing technology. Ciena then adjourned a pending stockholders meeting at which shareholders would have voted on the Tellabs merger.
Ciena also announced it expected earnings to be lower than expected. The company announced last week that net income for the quarter ended at $16.1 million, or 15 cents per share, compared with net income for the third quarter of 1997 of $35.7 million, or 34 cents per share.
On Aug. 27, Ciena confirmed it had been named in two class-action lawsuits that alleged the company issued false and misleading statements. Ciena last week said those lawsuits have been dismissed.
Tellabs and Ciena subsequently revised the exchange ratio of their proposed stock-for-stock merger from an equal exchange ratio to a ratio of 0.8 shares of Tellabs for each outstanding share of Ciena. The revised merger agreement was valued at about $4.7 billion, compared with the original June 3 agreement valued at $7.1 billion.
“For us to have persisted at an exchange ratio that we had negotiated down once was not likely to gain significant approval among our shareholders,” said Birck. “That said, we felt that it was best that we either address a substantially reduced ratio or make the deal go away.”
Patrick Nettles, Ciena’s president and chief executive officer, said, “While we are disappointed that our plans with Tellabs will not come to fruition, we remain excited about our future as an independent entity. Over the short-term, Ciena will continue to face the challenges associated with expanding our customer base, but the core elements of our business remain strong.”
