Tellabs Inc. and Ciena Corp. revised the exchange ratio of their proposed stock-for-stock merger from an equal exchange to a ratio of 0.8 shares of Tellabs for each outstanding share of Ciena following a recent announcement by AT&T Corp. it would not consider Ciena’s 40-channel wireless digital modem multiplexer.
Concerns were expressed by Tellabs shareholders and others about the quality of Ciena’s MultiWave Sentry 4000 product. “We’ve talked to people who use it and we’ve looked further at it, and we came away from the investigations absolutely convinced that there is nothing wrong with that product,” said Tellabs Chief Executive Officer Mike Birck. “Any change that came on the scene … had nothing to do with the fact that this product either is deficient or doesn’t work.”
Birck said the revised exchange ratio will “probably be slightly more dilutive then [Tellabs] had initially indicated.” Tellabs previously said the merger would be 2 cents to 4 cents dilutive to earnings during the third quarter, but now forecasts it could be between 5 cents and 6 cents. The worst-case scenario for next year could be somewhere as diluted 14 cents to 15 cents, Birck conceded.
“Our intention is to do all we can to make dilution not a factor in 1999 … The strategic reasons for doing this (merger) are still very much in place” even if there is a penalty of dilution in second year, said Birck.
The boards of directors of both companies approved the renegotiated merger terms and scheduled special stockholder meetings Sept. 9 to obtain stockholder approval, said Tellabs.
