Tellabs Cuts Price of Ciena Acquisition

With the value of <%=company%> (Linthicum, MD) reeling from news that AT&T (New York, NY) would not deploy its wavelength division multiplexing (WDM) equipment, Tellabs Inc. (Lisle, IL) dropped the value of its acquisition offer to about $4.7 billion, down from the $7.1 billion proposed in June. The companies plan to exchange 0.8 shares of Tellabs stock for each share of Ciena stock—the previous deal called for an even swap.

AT&T has not offered an explanation for its decision to abandon Ciena equipment, fueling speculation that there are problems with Ciena's product, reports Tellabs CEO Michael Birck. "We've talked to people who use it, we've looked further at it, and we came away from the investigation absolutely convinced that there is nothing wrong with the product," he says.

Part of the speculation behind AT&T's decision on Ciena equipment involves the ability to carry OC-192 line rates over WDM. AT&T executives have stated that the carrier plans to deploy OC-192 in its network, side-by-side with existing OC-48 equipment. Ciena's arch rival and primary AT&T WDM supplier Lucent Technologies (Murray Hill, NJ), touts the ability to carry both OC-48 and OC-192 line rates in its next-generation WDM system.

With regard to OC-192 WDM, "the technology there is something that we understand very well," says Ciena CEO Patrick Nettles. "We've planned and executed some work in the technology sector, but we have not made any product announcements," he continues. "We don't think that's an impediment to our business."

As for next-generation capability, "I would suggest that you not confuse showing something at a trade show with having a product ready for the market," says Birck. "What appears at a trade show and what customers sign a purchase order for are sometimes quite different."

Birck is confident that Ciena has the highest channel-count WDM product carrying traffic, but acknowledges that Ciena's lead in high-end WDM is narrowing. "You've got some big, big, players with enormous resources all focused on this sort of thing," he says. "We suspect that those who have an embryo product and want to get it into the marketplace will turn, have turned, and are turning to price [to compete]."

With regard to the revised acquisition terms, the boards of directors of both Ciena and Tellabs have approved the renegotiated agreement and unanimously recommend its approval by their respective stockholders. Both companies have special stockholder meetings scheduled for September 9, 1998 to approve the merger, but they expect to delay the meetings by a few weeks to allow stockholders time to review the new deal.