Ciena: Will They Be Outbid For Nortel Optical Unit?

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Ciena (CIEN) shares continue to rally ahead of the revised deadline for Nortel’s optical components business. In October, Ciena agreed to buy all of the optical networking and carrier Ethernet assets of Nortel’s Metro Ethernet Networks division for $390 million in cash and 10 million CIEN common shares. But under terms of the deal Nortel was free to seek other bids, and has basically been holding an auction for the business. Today is the revised deadline for submitting a bid.

In general Ciena investors are not keen on the proposed deal, and the recent spike in CIEN shares seems to reflect a belief that the company will be out-bid for the Nortel unit.

Jefferies & Co. analyst George Notter writes today that other potential bidders include Ericsson (ERIC), Nokia Siemens Networks (NOK, SIE) and private equity buyers. He thinks NSN or Ericsson are the most likely acquirers, and asserts that either one could geneate more revenue and cost synergies than Ciena.

Notter thinks a winning bid from anyone other Ciena would likely drive up CIEN shares - and that it they win, the stock is likely to sink.

At the moment, the Street seems to betting that Ciena will lose; in other words, the stock is trading higher. CIEN spiked 70 cents, or 5.7% to $13.07 yesterday, and has gained another 66 cents, or 5.1%, to $13.73 today.