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November 24, 2009

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Ciena appears close on Nortel deal

CIENA Corp will buy the optical networking and carrier ethernet business of bankrupt Nortel for US$769 million, after trumping Nokia Siemens Networks in a three-day auction, sources told Reuters.

The deal will more than double turnover of US network equipment maker Ciena, raising market worries over integration of operations, and over increase of its debt load. Ciena's winning offer consists of US$530 million in cash and US$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, 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.

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 company's shares in recent weeks.

To integrate the unit, Ciena would have to swallow the business with annual revenues of around US$1 billion -- higher than the US$902 million it earned in the same period.



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