Fallout from Nokia-Siemens Against CIENA Nortel (CIEN, NRTLQ, NOK, SI, TLAB, JDSU)

CIENA Corp. (NASDAQ: CIEN) has been under pressure for increasing its bid for the Nortel optical networking unit in the Nortel Networks Corp. (NRTLQ) bankruptcy.  But now there is a stalking horse potentially via Nokia Corp. (NYSE: NOK) and Siemens AG (NYSE: SI) in the Nokia Siemens venture.  This could have broad implications for what many feel is already an expensive acquisition for a solid unit from one of the largest corporate disasters in modern times.   This deal and/or deal interruption attempt potentially has consequences for more than just the known companies involved today.

Nokia Siemens Networks is said to be objecting in bankruptcy court to the recent win by Ciena in its $769 million bid for the optical networking and carrier ethernet units from Nortel.  The figure being used is a raised offer of $810 million in cash.

Ciena won this bidding process initially and it is not clear exactly how this will pan out.  A higher bid is in the interest of the bankruptcy courts, but deadlines are supposed to be deadlines.  There is also the precedent that could be set up in after-close shadow bids from larger companies looking to gobble up cheap assets out of bankruptcy court at the expense of bidders that go through a formal bankruptcy process.

The real issue is where this leaves Ciena if the deal is not consummated.  Ciena’s management is taking a huge risk with this buyout.  While it has made acquisitions, it would be doubling its size and has never embarked on something of this size.  It will also be taking a solid balance sheet and leveraging it to the hilt at a time when carrier enterprise spending in the next 24 months is still a wild card for many equipment makers.

Ciena shares are up almost 6% at $13.00 on today’s news as this would keep the company from leveraging its future by such an amount.  Ciena was a $15.00 stock and even $16.00 before it embarked on this acquisition.

Way back when, about 10 years ago, Tellabs Inc. (NASDAQ: TLAB) was a merger partner with CIENA.  That deal fell apart before the tech bubble burst.  For whatever it is worth, Tellabs is now worth almost twice as much in market cap as CIENA.

Sometimes it is best for management of a company to look at what the stock market is voting on with buying and selling activity than it is to embark into an unknown and unexplored avenue.

There is one other aspect of this deal though.  Some market pundits have tried to show that JDS Uniphase Corp. (NASDAQ: JDSU) could be an acquisition target in the world of fiber and communications equipment providers.  Depending upon how this Nokia-Siemens or CIENA deal works out, this could create some added attention there.

JON C. OGG
DECEMBER 2, 2009