The telecommunications network specialist Ciena Corporation (CIEN) announced that it has received regulatory approval under the Investment Canada Act for the proposed acquisition of Nortel Network Corp.’s optical networking and carrier ethernet business for a total consideration of $769 million. Ciena said that the regulatory approval validates that the deal is beneficial for Canada.
Ciena will pay $530 million in cash and $239 million in convertible notes for Nortel’s Metro optical and Ethernet Networks (MEN) division. This is up from Ciena’s previous bid of $522 million ($390 million in cash and 10 million Ciena shares).
Ciena has now completed applicable regulatory reviews in the United States and Canada. The company said it expects the deal to be significantly accretive to its operations in fiscal 2011. The transaction is expected to close in the first calendar quarter of 2010.
Ciena will take over Nortel’s long-haul optical transport portfolio, metro optical Ethernet switching and transport solutions, Ethernet transport, aggregation and switching technology, multiservice SONET/SDH product families and network management software products. We believe that the deal has the potential to drive significant growth in Ciena’s rapidly expanding metro Ethernet business and optical networking products. The Nortel deal would be the largest ever for Ciena and would also help it expand geographically and provide higher cross-selling opportunity.
Nokia Siemens Networks, a joint venture of Nokia (NOK) and Siemens AG (SI), challenging Ciena’s bid for the Nortel assets lost in the three-day auction.
Longer-term, we view the deal to be positive for Ciena. The merger could double Ciena’s revenue. While the Nortel acquisition will enable revenue growth, integration risk is a major issue in our opinion. Ciena will incur integration-related costs in 2010, which will dilute its earnings.
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