Standard & Poor’s just downgraded Ciena today. The corporate credit rating cut was to “B” from “B+,” which is still deeper into junk territory. S&P noted that the final $769 million acquisition price is sharply higher than its earlier bid. Also noted was that the higher cash and debt-financed price will further deplete Ciena’s liquidity, and will increase its net debt. On top of the downgrade, S&P said it is leaving Ciena’s rating on CreditWatch with negative implications.
Jefferies cut the rating to an underperform rating. It commented about severe integration risks specifically for Ciena if it won the offer. We cannot share that concern more, particularly since the deal won’t be accretive until 2011 per the CEO.
Morgan Keegan downgraded Ciena yesterday to Market Perform from Outperform. It called it an “at all costs approach.”
CEO Gary Smith gave a CNBC interview yesterday talking about a transformational deal. Frankly, it was a very unimpressive comment.
It was just in late-October that Citigroup issued a Buy rating, but that was based upon a lower perceived buyout price than the final tally of $769 million.
It is easy to Monday-morning quarterback a merger. It is also easy to pan a company for taking a risk or paying what seems to be too much. It may be the case that Ciena needed to acquire this for future relevance. Still, it is hard to not consider that if the assets were so great then why couldn’t it have saved Nortel from the bankruptcy executioner.
Ciena shares are up almost 4% at $12.46 mid-afternoon. Assuming this holds, it will break a 3-day losing streak. But it is also under the $14.02 close from last Friday when the bidding delay was viewed as a positive for Ciena.
JON C. OGG
NOVEMBER 24, 2009
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