Ciena in talks for Ethernet

A U.S. technology company is in “advanced talks” to buy what has been described as the “crown jewel” assets of bankrupt Nortel Networks, Canada’s erstwhile high tech superstar.

TORONTO — A U.S. technology company is in “advanced talks” to buy what has been described as the “crown jewel” assets of bankrupt Nortel Networks, Canada’s erstwhile high tech superstar.

Ciena Corp. (Nasdaq:CIEN), which had been a smaller, less diversified rival to Nortel, announced Monday that it’s interested in acquiring substantially all of the optical networking and carrier Ethernet assets of Nortel’s Metro Ethernet Networks.

No price was put on the offer by either Ciena or Nortel, which has been selling off its core businesses to pay off creditors in a bankruptcy restructuring.

However, Duncan Stewart, director of research and analysis at DSAM Consulting, said around $1 billion would not be out of line, although it was difficult to get a completely accurate read.

“Twice now we’ve seen a stalking-horse bid where somebody essentially, like at an auction, puts in a reserve or a minimum bid,” Stewart said.

“The issue here is we have no idea what the floor is and I don’t actually know if that means this is going to be a less competitive bidding process than the other two were or perhaps a more competitive one,” Stewart said.

“Perhaps the reason Ciena has not announced a dollar amount . . . is that they don’t want to tip their hand,” he added.

Last month, Nortel announced its Enterprise Solutions division would be sold to New Jersey-based Avaya for US$900 million. Avaya had originally bid US$475 million in July but then had to sweeten the offer to win an auction that began Sept. 11 and lasted several days.

Prior to that, LM Ericsson of Sweden agreed to pay US$1.13 billion for Nortel’s wireless network business, beating out a US$650-million stalking horse bid put forward by Nokia Siemens, a joint venture between Finland’s Nokia Corp. (NYSE:NOK) and Germany’s Siemens AG (NYSE:SI).

News of the negotiations involving Ciena came as no surprise, since the Maryland-based company had always been considered a likely bidder.

Stewart said there are perhaps a half a dozen other possible players thought to be interested Metro Ethernet Networks, including Alcatel-Lucent and the China’s Huawei.

“Although the wireless division had the biggest sales and although the PBX division had the biggest installed base, I view Nortel’s optical assets as the crown jewel from a technology perspective,” Stewart said.

“I’m suspecting that it goes for more than a billion dollars,” he added.

The Metro Ethernet division is considered one of Nortel’s strongest assets because it includes the rights to technology that enhances the speed and capacity of current fibre optic networks by as much as 10 times.

Some analysts have said the division could fetch up to US$1.5 billion, although the outcome would depend on what’s included in the deal and whether there’s a competitive auction.

While Ciena didn’t say in its announcement what it expects to pay, it cautioned that the “outcome of these discussions is uncertain and subject to negotiation of definitive agreements.”

Nortel, which became Canada’s most valuable company and one of its most widely held stocks during its peak during the 1999-2000 period, formerly had one of the world’s most diverse portfolios of products in the telecom industry.

Ciena, based in Linthicum, Md., near Baltimore, had 2,203 employees at the end of 2008 and supplies communications networking equipment, software and services that manage voice, video and data traffic.

Ciena shares traded Monday at US$14.06 on the Nasdaq market, down 60 cents or more than four per cent.

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