Ciena to buy Cyan, expand SDN play

Ciena Corp. (NYSE: CIEN) says it will expand its software-defined networking (SDN) chops by acquiring SDN platform and packet-optical transport systems vendor Cyan Inc. (NYSE: CYNI). Ciena has signed an agreement to pay approximately $400 million in cash and stock for Cyan. The price tag reduces to $335 million net given the estimated cash Cyan will bring with the deal.

Ciena Corp. (NYSE: CIEN) says it will expand its software-defined networking (SDN) chops by acquiring SDN platform and packet-optical transport systems vendor Cyan Inc. (NYSE: CYNI). Ciena has signed an agreement to pay approximately $400 million in cash and stock for Cyan. The price tag reduces to $335 million net given the estimated cash Cyan will bring with the deal.

Cyan began life as an optical transport company with its Z-Series of modular packet-optical transport platforms in 2009, but has always touted its software capabilities (see "Cyan Optics debuts company, packet optical transport platforms"). This expertise led to the introduction of the Blue Planet SDN platform (see "Cyan offers Blue Planet OpenFlow-based SDN capabilities" and, most recently, "CenturyLink tabs Cyan's Blue Planet to orchestrate NFV-enabled business services"). The company also recently introduced an optical transport platform, the N-Series, aimed squarely at data center interconnectivity requirements (see "Cyan makes data center interconnect play with N-Series").

When it consummates (a milestone expected during Ciena's fiscal fourth quarter of 2015), the deal would significantly expand Ciena's play in SDN and network functions virtualization (NFV). The company has emphasized these areas recently with the creation of the Agility business unit as well as the introduction of its Agility Matrix service provisioning platform (see "Ciena Agility Matrix offers online shopping for VNFs"). The N-Series also will enable the company to more directly compete with the likes of Infinera, BTI Systems, and others who have created specialized hardware and software offerings for the growing data center interconnectivity niche.

Ciena says it plans to provide Cyan shareholders cash and stock equal to the value of 0.224 shares of Ciena common stock for every share of Cyan they own. The compensation will come in the form of 89% in Ciena common stock and 11% in cash based on the value of Ciena common stock at the deal's closing. This compensation represent $4.75 per share of Cyan common stock, based on Ciena's 20-day volume weighted average price as of May 1, 2015. Cyan's stock closed at $3.65 that day, which means Ciena is offering a 30% premium.

Ciena says it also will assume Cyan's $50 million in outstanding principal amount of 8.0% Convertible Senior Secured Notes due 2019.

Cyan has made significant inroads with its technology, but isn't turning a profit. Simultaneously with the acquisition announcement, the company revealed that despite 18% sequential revenue growth and 89% year-on-year improvement in its fiscal first quarter, it suffered at GAAP loss of $52.9 million ($1.11 per share) on sales of $36.0 million. A $41.3 million non-cash charge for the change in fair value of warrant and derivative liabilities associated with its convertible debt was the main culprit, according to management. On a non-GAAP basis, the company lost $15.3 million ($0.33 per share).

The transaction remains subject to approval by Cyan stockholders as well as U.S. regulators. The boards of the two companies have approved the deal. Ciena says it also has acquired signed voting agreements of approval from officers, directors, and affiliated stockholders, including investment funds affiliated with certain directors, that collectively hold more 40% of the outstanding shares of Cyan.

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