Ciena Takes NT’s Ethernet Business

The telecommunication and network specialist, Ciena Corporation (CIEN) announced that it has received regulatory approval for the proposed acquisition of substantially all of Nortel Network Corp.'s (NT) optical and Ethernet division.
 
The company has been granted termination of the waiting period under the Hart-Scott Rodino Act in the United States. The Canadian Competition Bureau has also approved the takeover. 

Ciena plans to acquire substantially all of the optical networking and carrier Ethernet assets of its rival Nortel Networks’ Metro Ethernet Networks (MEN) division, for a total of $521 million ($390 million in cash and 10 million in shares worth $142 million based on the Oct. 15 market price). 

However, the deal also requires the approval of the United States Bankruptcy Court for the District of Delaware and the Ontario Superior Court of Justice. Nortel had filed for bankruptcy in January. 

The deal is still subject to a competitive bidding process scheduled for Nov. 13. Recently, according to a Bloomberg report, it appears that Nokia Siemens Networks, a joint venture between Nokia (NOK) and Siemens AG (SI) may bid for Nortel’s Ethernet business, which could enable it to expand its own Ethernet business in North America. 

With a market capitalization of $1.12 billion, we expect Ciena to clinch the deal, which would help the company’s Carrier Ethernet platform differentiate and provide a competitive advantage against larger players such as Alcatel-Lucent (ALU), Cisco Systems (CSCO) and Tellabs (TLAB). 

We believe that the deal will provide strong growth potential to 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. 

While the Nortel acquisition will boost revenue grow, integration risk will be something to consider. We have a Neutral rating on the stock.

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