Once a dominant global tech company, Nortel is now in the grueling process of liquidating its assets. For example, over the weekend the company conducted an auction to unload its Metro Ethernet Networks (MEN) division. The winner? It was Ciena (CIEN), which has agreed to shell out $769 million for the asset. The other bidder was Nokia Siemens.
It was a heated auction, as Ciena's original bid was at $521 million.
However, in light of the recession and the uncertainties at Nortel, the MEN's division has posted deteriorating results. For the first nine months of this year, sales dropped 21.3% to $988 million.
So why the deal? For the most part, it's an easy way for Ciena to pick up more than 1,000 customers spread across 65 countries. Keep in mind that roughly two-thirds of Ciena's customers are based in the US.
What's more, Nortel has a strong technology offering for optical-transmission equipment.
Yet, there are certainly risks. Basically, Ciena will need to deal with the challenges of a massive integration, as the employee base doubles. There will also be complexities in meshing the various technologies.
In fact, in today's trading, the shares of Ciena are down 8% to $12.09.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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