Ciena Corp. (Quote), which has been hit hard by the slowdown in the telecommunications sector, said it has agreed to buy metropolitan optical networking concern ONI Systems (Quote) to form a "new next-generation optical networking leader."
Terms of the pact call for all outstanding shares of ONI common stock to be exchanged at the ratio of 0.7104 shares of Ciena common stock for each share of ONI common stock, representing about 24% ownership of the combined company. Based on Ciena's stock price at the close of Friday trading, the deal is valued at approximately $900 million.
Gary Smith, Ciena president and chief executive officer (CEO), said in a statement, "With this acquisition, Ciena dramatically expands its metropolitan presence. We also further improve the economics of network ownership for our customers by enhancing our ability to offer carriers the most comprehensive, next-generation optical networking solution."
As a result of the buyout of San Jose, Calif.-based ONI, "we expect to accelerate Ciena's return to profitability," Smith also said.
Earlier this month, Ciena said it would lay off about 400 employees and close its Marlborough, Mass. research and development facility, as it was hobbled by disappointing first-quarter results and anticipated flat revenue in the second quarter. The company said it expects to record a restructuring charge of between $9 million and $11 million in its second quarter associated with the 12 percent work force reduction.
Last November, Ciena cut its work force by 10 percent, laid off 380 employees and took a $5 million to $6 million restructuring charge. That workforce reduction was concentrated in its manufacturing operations.
In the ONI merger, Ciena said it expects the transaction will result in "annualized operating expense synergies" of $55 million to $65 million for the combined company, as well as additional manufacturing efficiencies. Company officials also estimate that the combined company would have approximately $1.3 billion of cash net of debt as of January 2002/
Ciena said it expects the transaction to qualify as a tax-free reorganization. This transaction is subject to various conditions and approval by appropriate government agencies and the stockholders of Ciena and ONI. The Boards of Directors of both Ciena and ONI each have approved the transaction.
Upon closing, the combined company will retain the Ciena name and will be headquartered at Ciena's current headquarters in Linthicum, Md.
Current ONI Chairman, President and CEO Hugh Martin will take a "major role to help ensure the successful integration of Ciena and ONI's organizations and product lines," officials said. But Martin is not expected to remain with the combined company in the long term.
Following the completion of the transaction, Ciena's existing Metropolitan Transport and Metropolitan Switching efforts will be combined with ONI's, the company added.
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