10 April 2003 Linthicum, MD Lightwave--Optical networking systems provider CIENA announced a definitive agreement to acquire multiservice switching vendor WaveSmith Networks (Acton, MA). CIENA was an investor in privately held WaveSmith's third round of financing and resells WaveSmith's equipment under a previously announced worldwide sales and reseller agreement.
Under the terms of the acquisition agreement, WaveSmith will merge into CIENA, and all remaining outstanding shares of WaveSmith common and preferred stock will be exchanged for approximately 36 million shares of CIENA common stock. CIENA also will assume WaveSmith's employee stock options, which will be converted into options to purchase CIENA shares. The aggregate value of the shares to be issued by CIENA for this acquisition is approximately $158 million, which is net of the return on CIENA's original investment in WaveSmith resulting from the merger. CIENA expects the transaction will be accretive to its 2004 earnings, exclusive of certain unusual, non-operational or non-recurring charges or credits that are required by generally accepted accounting principles.
"Restoring growth and profitability to our business in this challenging environment requires that we be willing to take action to expand our addressable market to drive revenue," said Gary Smith, CIENA's president and chief executive officer. "Through the addition of WaveSmith's products to CIENA's next-generation networking solutions, we gain access to a substantial incremental market opportunity for CIENA."
Industry analyst firm Infonetics Research estimates that the worldwide multiservice switch market addressed by WaveSmith's products will grow from approximately $2.4 billion in 2003 to nearly $4 billion by 2006.
WaveSmith recently announced a multi-year contract with SBC Services for WaveSmith's DN 7100 multiservice switch to be used for DSL aggregation across 200 nationwide sites.
"This combination furthers CIENA's product strategy of leveraging our core position to reach out, up and across incumbent carriers' networks - expanding our addressable market as we go," continued Smith. "By adding multiservice data switching-capable products to our in-house solution set, we not only open another door through which to penetrate our target customers but we also will be able offer customers additional cost savings through enhanced network automation."
The WaveSmith distributed node (DN) multiservice switch platform is the first product line designed from the ground up to sustain and leverage today's layer 2 infrastructure with an evolutionary path to future technologies, according to the company. It allows service providers to transition their legacy networks at a pace that matches their business plans and capital budgets. The company was founded in March 2000.
"In this capital constrained market, carriers are closely examining every expenditure to make sure it generates a revenue-producing result. WaveSmith's DN switching platform makes carriers' existing services at layer 2 more profitable while at the same time providing a future-proofed foundation to evolve with their legacy infrastructure," said Tom Burkardt, chairman, president and chief executive officer of WaveSmith. "CIENA's global reach, financial strength, market presence, and product strategy combined with WaveSmith's leading multiservice data switching platform provides carriers with a compelling and comprehensive offering."
CIENA expects the transaction to qualify as a tax-free reorganization. This transaction is subject to various conditions and approval by appropriate government agencies and the stockholders of WaveSmith. The boards of directors of both CIENA and WaveSmith each have approved the transaction. It is expected that this transaction will close during CIENA's third fiscal quarter 2003. WaveSmith will continue to operate from Acton.