NEW YORK/HELSINKI (Reuters) - Ciena Corp CIEN.O will buy the optical networking and carrier ethernet business of bankrupt Nortel for $769 million, after trumping Nokia Siemens Networks in a three-day auction, sources told Reuters.
The deal will more than double turnover of U.S. network equipment maker Ciena, raising market worries over integration of operations, and over increase of its debt load.
Ciena’s winning offer consists of $530 million in cash and $239 million in convertible notes, one of the sources said, speaking on condition of anonymity since details of the auction have not been made public.
The final bid by rival Nokia Siemens Networks NSN.UL, which had teamed with private equity firm One Equity Partners, came “very close” to Ciena’s offer, the source said.
“Nokia Siemens Networks believes that its final offer represented fair value for the assets, and further bidding could not be financially justified,” NSN said in a statement.
The deal values Nortel’s unit at almost 0.8 times annual sales, which gives “pretty good premium to the market,” said Earl Lum, president of EJL Wireless, a wireless infrastructure research firm.
Last month Ciena made a stalking-horse offer for these assets of Nortel Networks Corp NRTLQ.PK, the Canada-based telecommunications company that filed for bankruptcy in January and has been auctioning off assets.
The stalking-horse bid set a floor price, but Nortel was free to seek higher offers.
Ciena initially offered $390 million in cash and 10 million shares of Ciena stock, for a total deal value of $522 million, based on the Friday closing price of Ciena stock.
On November 18, another source familiar with the sale told Reuters that Nokia Siemens Networks NSN.UL and private equity firm One Equity Partners, which manages $8 billion in investments for JPMorgan (JPM.N), had also jointly bid for the assets.
Representatives for Ciena and Nortel did not return calls seeking comment.
For Ciena, the purchase of these core assets in Nortel’s metro ethernet networks business is an opportunity to increase sales.
The equipment manufactured by these companies is used to build the Internet infrastructure that supports corporate and residential networks.
But analysts and investors have been concerned that the deal will weigh down Ciena’s operations, hurting the U.S. company’s shares in recent weeks.
To integrate the unit, Ciena would have to swallow the business with annual revenues of around $1 billion -- higher than the $902 million it earned in the same period.
Ciena had total cash and securities of just over $1 billion and $798 million of debt on its balance sheet at end-July, according to regulatory filings.
Winning the auction for these Nortel assets would have helped Nokia Siemens, a 50-50 joint venture of Nokia NOK1V.HE and Siemens AG (SIEGn.DE), expand its U.S. presence. The company has said North America along with India, Japan and China, are its four top growth targets.
Editing by Gary Crosse and Lincoln Feast