Ciena beats Nokia-Siemens to Nortel unit

Judge dismisses counter offer

Network equipment maker Ciena trumped an offer by Nokia Siemens and its financial partner, One Equity Partners, with an auction-winning bid of $530 million in cash and $239 million in convertible securities for Nortel's optical networking and carrier ethernet business.

On Tuesday, the 50-50 joint venture of Nokia of Finland and Siemens of Germany said it was ready to raise its offer to $810 million in cash, if the auction, which ended in late November, was reopened.

That set up Wednesday's fight in court, with Nokia Siemens and some creditors arguing the auction should be reopened, in part because Ciena's convertible securities were over-valued.

After roughly seven hours of argument, testimony and cross-examination, Nortel's attorney said his team had a reached a deal in the hallway outside the court that would lead to the withdrawal of the last major objection.

To clear the last objection, Ciena agreed to change the pricing on its convertible securities under certain conditions.

"This increases the value to the estate," said Jennifer Feldsher, an attorney with Bracewell & Giuliani, which was representing creditor Matlinpatterson Global Investors. "We withdraw our objection."

Nokia Siemens suffered a setback hours earlier when the judges ruled the joint venture did not have the standing necessary to object to Ciena's bid.

The Nokia venture “is a disgruntled bidder,” US bankruptcy judge Kevin Gross said in Wilmington.

Nokia Siemens' attorney, Gregg Galardi, was critical of the deal, saying it appeared to allow Ciena to change its bid and Nokia Siemens should be allowed to as well.

"It sounds like there is a material change to the bid," Galardi of Skadden, Arps, Slate, Meagher & Flom said. "If that doesn't reopen the auction, I don't know what does. We stand by that $810 million bid."

Nortel's lawyer, James Bromley of Cleary Gottlieb Steen & Hamilton, had argued the auction should not be re-opened.

"We can't do that. It's not fair to employees, to customers, to the company and not fair to the counterparties," Bromley said.

Ciena later announced that its agreement to acquire substantially all the optical networking and carrier Ethernet assets of Nortel’s Metro Ethernet Networks business in North America, the Caribbean, Latin America and Asia has been approved by both the United States Bankruptcy Court for the District of Delaware and the Ontario Superior Court of Justice.

Ciena has also entered into a separate agreement with Nortel and the joint administrators to acquire substantially all of the optical networking and carrier Ethernet assets of the MEN business in Europe, the Middle East and Africa.

The deal remains subject to regional regulatory clearances as well as customary closing conditions. In the EMEA region, it is subject to statutory information-sharing and consultation processes with  employee representatives, as well as approval of the courts in France and Israel.

The deal is expected to close in the first quarter of 2010.
 

Shares of Ciena closed up 4.9 per cent to $12.88 on Nasdaq.

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