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Telecommunications equipment industry

Tellabs Abandons Merger with Ciena Amid Slumping Earnings Outlook

Strategic Insights

— 1 min read

Tellabs Inc., a provider of telecommunications equipment, has decided to call off its proposed merger with Ciena Corp. due to Ciena's dwindling financial prospects and slumping share price. The move is a result of Ciena's failed bid for an important equipment contract with AT&T Corp. and the loss of a $100 million contract to Pirelli SpA, a rival Italian company.

Key Takeaways:

  • The merger deal was valued at $7.1 billion when it was first announced in June, but Ciena's financial outlook has since deteriorated, making it unlikely to win shareholder approval.
  • Tellabs shares had reached as high as $93 in late July, but fell to $45 a share on Friday, while Ciena shares dropped to $15.93 3/4 on the same day.
  • Tellabs Chief Executive Michael Birck acknowledged that the "tea leaves just were not right" for the deal to proceed and that renegotiating the deal at a lower price was not a viable option.
  • Ciena management opposed setting a price that would undervalue the company, and the companies have waived their breakup fees.
  • Tellabs will continue to prioritize optical networking technology and markets, which it views as a crucial part of the industry's future.
  • The company will return to its strategy of incorporating optical networking technology into its own telecommunications equipment products.

Statistics:

  • Tellabs shares fell to $45 a share on Friday.
  • Ciena shares dropped to $15.93 3/4 on Friday.
  • The merger deal was valued at $7.1 billion when it was first announced in June.
  • Ciena's failed bid for the AT&T contract and the loss of the $100 million contract to Pirelli SpA have significantly impacted the company's near-term earnings outlook.
  • This summer, Tellabs' shares had reached as high as $93 before falling to $45 a share on Friday.
  • Last quarter, Tellabs reported income of $70.5 million, or 46 cents a share, before gains, and sales of $387.7 million.

Sources:

  • "Ciena's Shares Fall After Deal to Acquire Tellabs is Terminated," Bloomberg, cited by the Daily Herald.
  • "Tellabs Abandons Merger with Ciena," Wall Street Journal.
  • "Tellabs Reports Second Quarter Fiscal 2003 Results," Tellabs Corporation Press Release.

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