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Ciena expands Net reach with Cyras buy

Moving deeper into one of the hottest networking markets, the optical equipment maker agrees to buy Cyras Systems in a deal valued around $2.6 billion.

Moving deeper into one of the hottest networking markets, optical equipment maker Ciena on Tuesday said it has agreed to buy privately held Cyras Systems in a stock deal valued around $2.6 billion.

Ciena said Cyras' family of products will help extend its reach from the core of service provider networks to metropolitan access and other large customer networks.

Metropolitan area networks, which service large cities, are expected to be a huge opportunity for network equipment providers because they need to be upgraded to handle the continuing deluge of Internet traffic. Using fiber optics, companies such as Ciena and Sycamore Networks can rapidly expand the capacity of these connections in large cities.

"This is an important strategic step for Ciena," chief executive Patrick Nettles said during a conference call Tuesday morning. "We talked about this market sector in previous (conference) calls and discussions, and as we've said (before), our perspective here is driven primarily by what customers need and what customers are prepared to act on."

Under terms of the agreement, Ciena said it plans to acquire all outstanding shares of Cyras in exchange for 27 million shares of Ciena common stock. Linthicum, Md.-based Ciena will also assume $150 million of Cyras outstanding convertible debt. Based on Ciena's closing price Monday of $96 per share, the proposed deal is worth approximately $2.6 billion.

Ciena said it plans to account for the transaction as a purchase and expects the deal to add to earnings during the second half of its fiscal 2002 period. The deal is expected to dilute the company's fiscal 2001 earnings by 19 cents to 22 cents per share on a pro forma basis, excluding charges related to the Cyras buy.

The consensus estimate from First Call/Thomson Financial is 70 cents per share for Ciena?s fiscal year 2001. The company said it does not plan to revise revenue forecasts for 2001, which it expects to remain in the projected range of 75 percent to 85 percent growth over this year.

If the deal has closed by that time, Ciena executives said they plan to offer details of financial guidance during the company's first-quarter conference call slated for Feb. 15.

After completion of the transaction, Cyras, based in Fremont, Calif., said it intends to form a new Ciena division focusing on multiservice access and switching products. All 264 Cyras employees will become Ciena employees. Cyras chief executive Alnoor Shivji will report to Ciena chief operations officer Gary Smith. Sales efforts of both companies will be combined.

Both companies' boards have approved the deal. The transaction, which is subject to regulatory approval and other customary closing conditions, is slated to close in the first calendar quarter of next year.