Optical networking vendor Ciena Corp. Wednesday announced a definitive agreement to acquire privately-held multiservice edge switch maker WaveSmith Networks Inc. for US$158 million in stock.
Ciena was a third round investor in WaveSmith and distributed the company's products. The acquisition announcement follows WaveSmith's recent contract, valued at least US$50 million over three years, to supply SBC Communications Inc. with multiservice edge switches in 200 sites.
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 deal helps Ciena tap additional sources of revenue as sales of optical networking gear remain sluggish during the three-year-old telecom slump.
"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 CEO, in a statement. "Through the addition of WaveSmith, we gain access to a substantial incremental market opportunity for Ciena."
Citing data from Infonetics Research, Ciena says the worldwide multiservice switch market addressed by WaveSmith's products will grow from approximately US$2.4 billion in 2003 to nearly US$4 billion by 2006.
Ciena also has a multimillion-dollar investment in multiservice core switch maker Equipe Communications. That relationship has yet to bear fruit however, as Equipe has not yet announced any customer wins.
The boards of both Ciena and WaveSmith have approved the transaction, which is expected to close during Ciena's third fiscal quarter 2003. WaveSmith will continue to operate from its Acton, MA., headquarters.