JANUARY 23, 2008 By Stephen Hardy -- Ciena Corp. (search for Ciena) has reached a definitive agreement to acquire privately held World Wide Packets (WWP; search for World Wide Packets). The $305 million price tag has raised a few eyebrows on Wall Street, however.
WWP, headquartered in Spokane Valley, WA, supplies Carrier Ethernet equipment. Its product line includes service aggregation switches, service concentration switches, and service delivery switches (SDS) -- all managed by the LightningEdge Operating System -- and network management tools. The company has seen most of its success in Europe and the United States. Its customer list, spread across more than 25 countries, includes ntl:Telewest in the UK, KPN, and "several top-tier Multiple System Operators (MSOs)" in North America.
The company also has had success with private network customers (see a typical story here). While Ciena is positioning the acquisition as a boost for its Carrier Ethernet efforts -- "Bringing to our FlexSelect Architecture these flexible, highly scalable Carrier Ethernet service delivery platforms further advances us in the high-growth business Ethernet services market and strengthens our position in the emerging wireless backhaul space," said Gary Smith, president and CEO of Ciena, in the press release announcing the acquisition -- WWP gives Ciena an entrée into the FTTH market as well (see here).
To underscore the value of the acquisition, Ciena also revealed it has received a multi-year contract of undisclosed value with AT&T to supply WWP platforms.
However, the price Ciena was willing to pay has given some analysts pause. WWP will merge with a wholly owned subsidiary of Ciena, and all outstanding shares of WWP common and preferred stock, including employee stock options and warrants (which will be assumed by Ciena), will be exchanged for approximately $200 million in cash and 3.4 million shares of Ciena common stock. Based on the price of Ciena shares on January 18, the stock value equates to approximately $90 million. Meanwhile, Ciena also has agreed to assume up to $15 million in outstanding WWP debt.
"We see promise from carrier Ethernet markets, which Infonetics predicts will grow from $4.1 bl in 2007 to $6.1 bl in 2009. However, Ciena could not provide sufficient disclosures to build confidence and the acquisition price appears steep," wrote Morgan Keegan's Stanley Leopold in a note to investors that typifies much of the reaction within the financial community.
"We are uncertain how to value the deal considering the disclosures, but based on what we know the acquisition seems expensive," Leopold added. "At $290 mm, the WWP acquisition appears to be nearly 10x trailing sales, and if we assume sales double in 2008, it's still expensive at 5x."
The deal is subject to the usual conditions and government agency approvals. However, the boards of the two companies have approved the transaction, and Ciena expects to close the acquisition during its fiscal second quarter 2008, which ends in April.
WWP will continue to operate from its current Spokane Valley and San Jose locations. Most of its employees are expected to be retained.
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