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Ciena buys ONI for $900 million

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Optical players Ciena and ONI Systems this week announced definitive plans to merge in an estimated $900 million deal.

Ciena says the merger allows it to add metro optical networking capabilities to its portfolio. Ciena's MultiWave Metro system could garner the company no better than a No. 3 position in metro DWDM.

ONI stands to gain Ciena's core optical networking and switching competencies, customer base and channels.

Investment firm UBS Warburg says it is viewing the deal as a strategic positive because of ONI's better DWDM portfolio and Ciena's scalability and customer awareness. Currently, ONI ranks second in the metro DWDM behind market leader Nortel.

Together, Warburg reports, Ciena and ONI will have a 50% share of the metro DWDM market, surging ahead of Nortel's 40% share. The firm warns, however, that cost/revenue paradigms and the integration process are key to the new company's success.

Both issues are crucial, Warburg says, because neither ONI nor Ciena is going to break even on their current quarterly revenues.

The combined companies would have had $1.6 billion in revenues in 2001, and about 4,000 employees, Warburg reports. Both companies' boards have approved the merger, which is expected to close during the second or third quarter of 2002.

The new company will retain the Ciena name and headquarters in Linthicum, MD.

ONI's chairman, president and CEO, Hugh Martin will stay on until the deal goes through, the company reports. However, he is not expected to stay with the new company long-term.

ONI's COO, Rusty Cumpston, will lead Ciena's newly merged Metropolitan Transport and Metropolitan Switching efforts. Jesus Leon, Ciena's senior vice president, Metro Transport and Switching, will head product integration.

ONI founder and CTO Rohit Sharma will become senior vice president and CTO of Ciena.

UBS Warburg believes this merger is "the tip of the iceburg in terms of consolidation in the telecom equipment industry." Warburg says this type of consolidation is inevitable due to the smaller telecom operator customer base and reduced capital spending in 2001 and 2002.

Under the terms of the agreement, shares of ONI common stock will be exchanged at the ratio of 0.7104 shares of Ciena common stock for one share of ONI. The value of the agreement is based on the closing price of Ciena's stock on Friday, Feb. 15, 2002.

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