The Top Five Reasons Ciena Won't Sell-Out
Company not likely to sell for less than massive premium from current print. Here's why.
Two days ago I buzzed on Ciena (CIEN) as one of my favorite trading plays on weakness. Yesterday the stock surged on what looks like some very aggressive call buying, and I'm surmising that M&A speculation is behind the option activity.
I've followed Ciena for years and know well their history on the M&A front. They've been the acquirer. At one point, Tellabs (TLAB) tried to buy them near the end of the tech bubble and that deal fell through. Personally, I think Ciena would be quite hesitant to sell for anything less than massive premium from the current print. Here's why:
1. The stock has the potential for huge gains on a standalone basis and has sold for much higher multiple of book, net cash, and sales relative to current levels.
2. What was a market full of too many competitors is now a market with few, and Ciena is one of the clear leaders (if not the premier company) in their space.
3. Ciena has a fairly entrenched management team and has been through the fire before after the tech bubble crashed, coming out the other side much stronger and leaner.
4. As seen from 2006-2008 results, the company is well positioned to deliver positive EPS given any meaningful uptick in end-market activity.
5. Lastly, the landscape of potential acquirers is somewhat problematic as Cisco (CSCO) -- which could most easily digest Ciena -- would likely face Department of Justice scrutiny. Former behemoth Nortel is gone and being parceled out. Another former behemoth Alcatel-Lucent (ALU) has a market cap only about 5 times where Ciena's is, and Ericsson (ERIC) has digested a lot of deals in the past few years. That really only leaves Juniper Networks (JNPR) as the most viable candidate, in my view.
Given all the above, I'd view the likelihood of a take-out being quite remote. However, if one were to occur, I think the premium would be similar if not greater than we saw with the EMC Corp (EMC)/Data Domain deal.
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