Category Archives: Ciena

Ciena’s Tweaked Terms Deliver Victory Over Desperate NSN for Nortel’s MEN Assets

On the surface, it appears that the bankruptcy judge presiding over the kerfuffle between Nokia Siemens Networks (NSN) and Ciena for the privilege of owning Nortel’s Metropolitan Networks (MEN) assets made his decision purely on legal and procedural grounds.

Then again, maybe not.

As reported by Bloomberg, U.S. Bankruptcy Judge Kevin Gross who is overseeing the liquidation of Nortel’s U.S. assets, ruled yesterday that NSN’s $810 million after-the-buzzer offer should be rejected.

Ciena, which formally had submitted the top auction bid of $759 million in cash and convertible notes, argued successfully that it already had begun work on combining the two companies subsequent to the November 22 auction.

Nortel had sided with Ciena in the post-auction fracas, asserting that allowing a bid after the conclusion of the auction would disrupt the sale of the company’s remaining assets – not that there are many in the corporate garage left to sell.

Even though the $810-million bid from NSN was too late, it wasn’t too little. At face value, and even taking into account a $21-million compensatory breakup fee Nortel would have been obligated to fork over to Ciena, the NSN bid appeared to represent a better deal for Nortel creditors.

What’s interesting is that the Ciena offer appears to have been tweaked yesterday in a hallway outside the courtroom. Quoting from a Reuters article:

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 overvalued.

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.

Withdrawal of the objections made that a near-certainty later on Wednesday.

U.S. bankruptcy court in Delaware and a Canadian court cleared the deal after simultaneous hearings, Ciena and Nortel said in separate statements.

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.”

Ciena’s pricing change to the convertible securities included in its bid appeared to represent a modification of its formal offer. The move triggered the ire of an attorney representing Nokia Siemens Networks. Quoting again from the Reuters report:

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.”

Was it a material change to the bid? If so, would it have been grounds to reopen the auction?

Don’t ask me. Those are legal questions, and I have difficulty distinguishing torts from tarts. However, I do welcome the learned opinions of the razor-sharp legal minds that frequent this blog occasionally.

That debate might be fun to have, but it would be entirely academic. NSN has conceded defeat, and Ciena is getting Nortel’s MEN business, even if the stock market and many of its shareholders wish otherwise.

As for NSN, the joint venture between Nokia and Siemens seems as confused and conflicted as ever, even if its new CEO is talking a big game about his plans for market-share gains and world domination.

Putting aside yesterday’s courthouse dustup, how could NSN fail to put its best collective foot forward during the actual auction process? How badly disorganized does the company have to be if it can’t be ready with its auction strategy before and during, you know, the actual auction?

I wrote before that the timing didn’t favor an NSN bid for Nortel’s MEN assets. Even though NSN scrambled in conjunction with private-equity concern One Equity Partners, which manages $8 billion in assets for JPMorgan Chase & Co., it is now evident that this was a last-minute, slapdash effort. It makes one wonder about the strategic coherence behind everything else that NSN is cobbling together.

Meanwhile, we read that Siemens today took an impairment charge of €1.634 billion for its continued involvement with NSN. Considering that Siemens AG has reduced its direct exposure to information technology, and that it has said IT is “not a great place to be,” one might question how long it will continue to take charges on a joint venture that seems strategically misaligned with its own big-picture objectives.

My supposition is that the recent emphasis on expanding and extending NSN into cleantech and renewable-energy solutions might have been, at least partly, a concession to Siemens, which has a large energy-related business and considerable expertise in that area. At its core, though, NSN remains a telecommunications concern, and that’s not where Siemens sees its future.

Seemingly flailing and swaggering at the same time, NSN lurches unsteadily into an uncertain future.

NSN Applies Full Court(s) Press in Late Bid for Nortel MEN Assets

As bankruptcy courts ponder how best to respond to the curveball that Nokia Siemens Networks threw at them in the form of an $810-million all-cash offer for insolvent Nortel’s Metropolitan Ethernet Networks (MEN) business, an article over at the Ottawa Citizen provides a good synopsis of where things stand.

As you might expect in any matter involving Nortel, there are elements of melodrama, tragedy, and farce.

Nokia Siemens Networks (NSN), for example, is claiming that it, and not Ciena, submitted the highest bid at auction. According to NSN, its final unconditional auction bid — offered in conjunction with One Equity Partners, a private-equity concern that manages $8 billion in assets for JPMorgan Chase & Co. — was for$770 million in cash.

NSN also said it tried to adjourn the auction to get expert advice on valuing the Ciena debt offer. According to the Ottawa Citizen, Nortel apparently refused the request for adjournment, putting NSN in what it called “an untenable position.”

Said Barry French, an NSN spokesman:

“We can confirm we have notified the representatives of Nortel’s creditors that we are willing to offer $810 million in cash for the optical networking and carrier ethernet assets of Nortel.”

“Along with our expert advisors, we continue to believe that the convertible notes offered by (Ciena) carry significant risk and should not be valued the same as cash.”

NSN is taking its case not only to the bankruptcy courts, but also to the court of opinion constituted by Nortel’s creditors.

Nokia Siemens Networks Files Late After-Auction Bid for Nortel’s MEN Assets

When somebody in business tells you it’s not about the money, you’d be wise to take those words with a mound of salt as high as Mount Vesuvius.

It’s nearly always about the money, my friends.

That’s why I think Nokia Siemens Networks (NSN) — the conflicted, divided, and potentially schizophrenic telecommunications-equipment joint venture — ultimately will be successful with its late, after-the-fact bid to acquire insolvent Nortel Networks’ Metropolitan Ethernet Networks (MEN) assets for $810 million in hard cash.

Admittedly, this late bid from NSN is a clear and obvious violation of the bankruptcy-auction process prescribed for the disposition of Nortel’s assets. NSN had a fair shot at Nortel’s MEN assets in the auction ring, and it came up short, losing to a $769-million cash-and-notes bid from Ciena.

According to the rules, Ciena won the auction fair and square. It should rightly take home the prize.

Hold on, though. Who said life, much less bankruptcy proceedings, was fair?

This transaction will come down to an exercise in mathematics. The bankruptcy court has rules to follow, but it also has Nortel creditors breathing down its neck. Those creditors want to squeeze maximum value from Nortel’s residual business assets.

The U.S. Bankruptcy Court for the District of Delaware was to decide today whether to approve the Ciena’s deal to acquire Nortel’s MEN assets. Pursuant to an agreement, Nortel would have to pay Ciena about $21 million in breakup fees and expense reimbursements if it chooses another buyer.

That’s why it all comes down to numbers. If I subtract $21 million from $810 million, I arrive at a sum of $789 million. The winning auction bid from Ciena, which comprises $530 million in cash and $239 million in senior convertible notes due in June 2017, tips the scales at $769 million.

Put yourself in the presumably shiny and eminently comfortable shoes of a Nortel creditor. Would you want $789 million in cash (after the $21 million deduction) or a bid of $769 million that includes only $530 million in cash? I think I know your answer.

The bankruptcy judge would need to be a paragon of probity and rectitude to deny NSN’s after-the-buzzer bid. He’d also need to have a thick skin, because the Nortel creditors won’t forget that they had a chance to get more money from a superior offer, even if it did come after the auction was over.

For Ciena, it’s not all bad news. It’s shareholders seem to rejoice every time the company’s bid for Nortel’s MEN assets is imperiled. Today was no exception, with Ciena shares rising on the NSN announcement.

Said UBS analyst Maynard Um, as quoted by the Wall Street Journal:

“We had earlier stated that we would view any price over $600 million as too high and as such we believe that the market is likely to take this negatively.”

The market might take a dim view, but Nortel’s creditors will respond favorably.

Ciena Gets Nortel’s MEN; NSN Faces Uncertainty

Now that Ciena has claimed Nortel’s Metropolitan Ethernet Networks (MEN) business assets, which include optical- and Ethernet-networking products and technologies, questions linger about what exactly transpired and what happens next.

Ciena’s winning bid was worth $769 million, about $248 more than the stalking-horse bid it submitted in October. Comprising $530 million in cash and $239 million in senior convertible notes due in June 2017, Ciena’s bid topped an indeterminate offer put forward by ambivalent Nokia Siemens Networks (NSN), which did its best afterward to rationalize why it didn’t come away with the auction prize.

The big winners in this auction are Nortel employees. About 85 percent (2,000) of Nortel’s MEN personnel will join Ciena, presuming the deal clears regulatory hurdles. The transaction must receive court approval in the United States and Canada, which it expects to get at a joint hearing December 2, as well as in France and Israel.

Based in Linthicum, Md., Ciena practically doubles in personnel as a result of the acquisition. It also gains about 1,000 new customers spread across 65 countries. Included among those new customers are carriers AT&T Inc., Verizon Communications Inc. and Comcast Corp.

Ciena says the deal will be “significantly accretive” to its operations in fiscal 2011. As noted by the Wall Street Journal, Nortel was a leader in developing 40 gigabit optical-networking equipment, allowing carriers to quadruple their network capacity without incurring much additional cost. It is also among the industry leaders developing the next-generation 100-gigabit optical-networking technology.

But the past tense of the preceding paragraph is notable. Like the rest of insolvent Nortel, the MEN business has struggled under the purgatory of bankruptcy protection. For the first nine months of this year, Nortel’s MEN business reported revenue of $988 million, down 21% from a year earlier. Results have been gradually worsening. In the latest quarter, Nortel’s MEN revenue fell 26 percent to $295 million in relation to the corresponding quarter last year.

While the market for carrier-Ethernet gear continues to grow, even during a downturn that has inhibited expansion in most carrier-related market segments, competition is fierce. Infonetics expects the market for carrier-Ethernet equipment to reach $34 billion by 2013, growing from $17 billion in 2008. Nonetheless, competitors including Huawei, Alcatel-Lucent, Ericsson (Redback), ZTE, and Extreme Networks. The added scale that Nortel brings to Ciena will help, but it doesn’t guarantee success.

Besides, as many analysts have noted, Ciena and its executive team have no experience integrating an acquisition of this size. Any student of technology acquisitions will tell you that more is likely to go wrong than to go right, especially when the team managing the integration hasn’t had the benefit of previous experience in similar circumstances.

Still, there’s no question that Ciena’s leadership is confident of being on the right track and will do its best to leverage what Nortel’s MEN assets offer. The same cannot be said for Nokia Siemens Networks (NSN), the Swedish-German joint venture that finds itself back in limbo after this auction. Having already fallen short of the mark in a bid for Nortel’s wireless assets, ultimately captured by Ericsson, NSN now has been a two-time loser in the Nortel auctions.

Bidding this time in conjunction with private-equity firm One Equity Partners, Nokia Siemens Networks (NSN) was at pains to justify its failure to overtake Ciena in the MEN auction ring. In a terse statement posted on its website, NSN said the following:

Nokia Siemens Networks confirms that, with its financial partner, it did not submit the highest bid for Nortel’s optical networking and carrier Ethernet assets in the bankruptcy court-sanctioned auction that began on Friday morning and extended through the weekend. Nokia Siemens Networks believes that its final offer represented fair value for the assets, and further bidding could not be financially justified.

It’s possible that the auction bid for Nortel’s MEN assets was something of a Hail Mary pass for the joint-venture partners. Now that it has fallen incomplete, Nokia and Siemens are likely to reconsider their commitments to the venture. Many think Siemens will want out of the arrangement. Meanwhile, Nokia might not have the fortitude or resolve to buy out its partner’s stake in the company. There’s a reasonable possibility that the joint venture might seek another partner or put itself for up for sale completely.

As for Nortel’s creditors, they must be pleased. At the end of the auction, they received a winning bid that was nearly a quarter-billion dollars more than the initial stalking-horse offer from Ciena. It wasn’t quite the $1.13-billion payday they derived from the sale of Nortel’s wireless assets to Ericssson, nor the more than $900 million they got from Avaya for Nortel’s enterprise business, but it wasn’t bad.

Gradually running out of assets to sell, Nortel is expected to make an announcement about the sale of its Global System for Mobile Communications (GSM) business later this week.

Nokia Siemens Networks Bids on Nortel’s MEN

As expected, Nokia Siemens Networks (NSN) officially stepped into the auction ring today to challenge Ciena for the privilege of owning insolvent Nortel Networks’ Metropolitan Ethernet Networks (MEN) assets.

The auction, as fas we know, is continuing. The winner would have to clear all the usual regulatory hurdles before consummating any purchase.

Speculation surfaced recently that Infinera might also take an auction-day run at Nortel’s MEN assets, but, as of now, we’ve received no confirmation that a third party has entered the proceedings.

NSN Gets Private-Equity Help for Counteroffer to Ciena’s Bid for Nortel MEN Assets

For a long time, it appeared Ciena might go unopposed in its quest to gain ownership of insolvent Nortel Networks’ Metropolitan Ethernet Networks (MEN) assets.

Adhering to the rules of the Nortel auction process, Ciena set the pace with a stalking-horse bid of $390 million in cash and 10 million in shares. Although the share component of the bid has varied in value, the Ciena proposal would have been worth $526 million at the close of trading yesterday.

From the outset, however, Nortel’s creditors weren’t entirely satisfied with a bid that wasn’t an all-cash offer. In previous auctions of Nortel business assets, involving its wireless and enterprise businesses, the former telecommunications colossus had accepted all-cash winning bids from Ericsson and Avaya, respectively.

The size of the Ciena bid, and the fact it contained a non-cash element, suggested that the competition for Nortel’s MEN assets wouldn’t be as intensive or extensive as were the auction battles for Nortel’s wireless and enterprise businesses.

In fact, Nortel had to pull out all the stops to get another bidder to contest the Ciena offer. On November 13, Nortel extended the deadline for bidding until November 17. The company seemed to be giving a second prospective bidder more time to cobble together an offer. Earlier, on November 3, two people familiar with the process said Nokia Siemens Networks (NSN) was considering a bid, according to Bloomberg.

Well, at long last, the beleaguered and conflicted NSN apparently has moved toward the auction ring. It needed assistance to do so, however, which tells you all you need to know about why the bid took so long to come together — and why Nortel had to extend the original deadline.

NSN apparently is making its bid in conjunction with private-equity firm One Equity Partners LLC, which manages $8 billion in investments for JPMorgan Chase & Co.

If you peruse One Equity’s investment portfolio, you’ll notice that it doesn’t exactly specialize in the telecommunications-equipment space. It has money, though, and that clearly was a draw for NSN, which is going through a dark night of the corporate soul as well as a difficult restructuring. At one point, one or both of its joint venture partners were said to be contemplating abandonment of the enterprise, with Siemens AG particularly uncertain about its commitment to the business.

Now, though, it appears NSN will make a bid. We know neither how high that bid will be nor how high Ciena will be willing to go to claim Nortel’s MEN assets. Many analysts who follow Ciena, as well as certain large investors in the company, would prefer not to see it escalate its offer much beyond the level set by the stalking-horse bid.

Something to keep in mind is that Nortel’s MEN business isn’t exactly firing on all cylinders. After some delay, Nortel reported its third-quarter financial results earlier this week; and, as one might expect from an insolvent company going through bankruptcy-related dissolution, Nortel is not doing well. Of the continuing operations that it fully owned, the MEN business saw the biggest year-over-year quarterly revenue decline. For the third quarter of fiscal year 2009, Nortel’s MEN business generated $295 million in revenue, down 26 percent from revenue of $398 million in the third quarter of 2008.

That’s not to say that somebody couldn’t acquire it, rehabilitate it, and get it back on track. It might be a fixer-upper property worth considering. It’s still a challenge, though, and neither Ciena nor NSN can afford to overpay extravagantly. If the bidding rises above $800 million, the ostensible winner of this auction eventually might be seen as the loser.

Regardless of the outcome, the auction will kick off tomorrow.

Nokia Siemens Networks Without COO As It Ponders Bid for Nortel MEN Assets

There’s a great headline and an interesting story over at Light Reading regarding an executive departure at Nokia Siemens Networks (NSN), which has experienced more than its share of drama in recent weeks.

Mika Vehviläinen, chief operating officer at NSN, is leaving the company to become the president and CEO of airline operator Finnair.

Said Vehviläinen:

” . . . . it was clear to me that the right change for the company and our customers would reduce the role of a dedicated chief operating officer. When Finnair approached me, it seemed like the right opportunity at the right time.”

Apparently NSN will not have a COO under its new executive structure. The joint venture’s CEO is Rajeev Suri, who came from the Nokia side of the house and led the services business at NSN before his promotion.

Now without a COO, Nokia Siemens Networks is said to be considering an auction bid for Nortel’s Metro Ethernet Networks (MEN) business assets. The deadline for bids originally was November 9, but Nortel has extended it for as many as five days.

Ciena Acquisition Bid Approved, but Nortel Postpones MEN Auction

Even though Ciena has received regulatory clearance to proceed with its proposed acquisition of insolvent Nortel Networks’ Metro Ethernet Networks (MEN) business assets for approximately $515 million in cash and stock, Nortel has deferred the bankruptcy-auction process in the hope that another bidder will emerge.

Bids were due yesterday for Nortel’s MEN assets, but Bloomberg reports that Nortel has extended the deadline by as many as five business days.

Clearly Nortel’s creditors believe, or hope, another bidder can be coaxed from the wings.

Murmurs surfaced last week that Nokia Siemens Networks (NSN) might take a run at Nortel’s MEN assets, but, as far as we know, the Finnish-German joint venture hasn’t thrown its binational hat into the auction ring. At one point, before NSN was said to be prepared to bid for Nortel’s MEN assets, reports circulated that Siemens, and perhaps even Nokia, wanted out of the joint venture entirely, discouraged by abstemious telecommunications spending and intensifying competition from rising Chinese vendors Huawei and ZTE.

Ciena’s stalking-horse bid, submitted last month, included $390 million in cash and 10 million shares of common stock. When Ciena first tendered its bid, its offer was worth approximately $521 million, but the value has declined slightly in the interim due to the fluctuating value of the company’s shares.

Until now, Nortel has sought cold hard cash for its business assets auctioned off under bankruptcy protection. It got $1.13 billion from Ericsson for its wireless assets and $915 million from Avaya for its enterprise business, though the latter transaction must pass an ongoing review by the Canadian government.

When CIena’s stalking-horse bid included stock, many observers felt it was a sign that Nortel didn’t expect heated competition for its MEN assets, which at one time were viewed as the company’s “crown jewels.”

Those jewels apparently are tarnished, because it’s becoming clear that Nortel is having to pull out all the stops — and then some — to persuade another party to join Ciena at the auction table.

The lack of competing bids has been good news for CIena, which was warned by analysts, including Mark Sue of RBC Markets, not to fall victim to the “winner’s curse” of overbidding to claim ownership of an asset.

Perhaps Nortel’s creditors have reason to believe another bidder is almost ready to declare interest, or maybe they’re just hoping one materializes. Whatever the case, the situation will be resolved soon enough.

Despite Conflicted Parents, NSN Reportedly Considering Nortel MEN Bid

Joint ventures, by their very nature, are complicated beasts. Even when the parent companies get along and are relatively aligned in their strategic directions, differences arise.

Sometimes joint ventures experience mild personality disorders resulting from the conflicting or diverging needs of the parents. Occasionally, though, when the discrepancies between parent companies are pronounced, the joint venture can exhibit all the behaviors and tendencies of a bipolar psychotic.

I think that’s what we’re witnessing at Nokia Siemens Networks (NSN), the loss-making joint venture between Finland’s Nokia and Germany’s Siemens. The latter partner has lapsed into depressed passivity, unsure whether it has the heart, the stomach, or the wallet for protracted losses in the telecommunications-gear market. Nokia, however, after taking its lumps and its goodwill writedowns, is enthusiastically gearing up for another run, with particularly keen emphasis on the wireless operators of North America as prospective customers.

So, if you’re wondering why Siemens and Nokia supposedly can be seriously weighing their ongoing commitment to NSN a few weeks ago and then reportedly pondering an auction bid for insolvent Nortel Networks’ Metro Ethernet Networks (MEN) business as of yesterday, you have to understand both the nature of joint ventures and the characters of these two parent companies.

As Nokia comes under increasing attack from low-end handset vendors in the developing world and high-end smartphones from the likes of Apple, Palm, and licensees of Google’s Android mobile operating system, it is desperate to strengthen its increasingly tenuous grip on carrier relationships, especially in North America, where its traditional weakness has become particularly egregious. For Nokia, then, NSN is a strategic bulwark, one it’s not yet ready to abandon.

For Siemens, well NSN is . . . what, exactly?

At one time, I’m sure NSN made sense for the German engineering conglomerate, and if Siemens Enterprise Communications (another joint venture, this one with Gores Group) had been successful in wresting Nortel’s enterprise business from Avaya at an earlier auction, there might have been some reciprocal synergies worth exploring. Now, though, it’s easy to understand Siemens’ gloomy ambivalence toward the whole project. Just how does NSN serve Siemens’ overall strategic objectives?

It’s an open question.

Anyway, getting back to NSN’s prospective interest in Nortel’s MEN business, I suppose a bid is entirely possible, especially if Nokia is driving the bus.

As I type this post, CIena’s $521-million cash-and-stock bid is the pacesetter in the forthcoming MEN auction. Actually, Ciena is only entrant to declare formal interest, though speculation has built in recent days regarding potential bids from Ericsson (possible), Cisco (is John Chambers suffering a late mid-life crisis?), and Infinera (possible).

Keep in mind, however, that, as of now, NSN has not thrown its hat into the auction ring. It could be that the reports we’re reading are just trial balloons, meant to test reactions and flush other bidders from hiding.

Either way, the clock is running on prospective bidders. As reported by Light Reading, the deadline to submit bids for the Nortel MEN auction is Monday, Nov. 9, with the auction itself scheduled for Friday, Nov. 13.

Let’s hope the bidders, and Nortel’s creditors, aren’t superstitious.

Nokia and Siemens Both Want Out of NSN

Yesterday I wrote that joint venture Nokia Siemens Networks (NSN) wasn’t in a position to contend for insolvent Nortel’s optical- and Ethernet-networking assets, which have received a stalking-horse auction bid of $521 million in cash and stock from Ciena.

Previously, I had wondered whether the joint venture’s two parent companies, especially Siemens, would remain committed to the struggling spinoff endeavor. Both parents have said they would incur massive goodwill writedowns on the joint venture, but they made encouraging noises about keeping it going and getting it back on track.

Behind the scenes, however, both companies are thinking long and hard about whether NSN warrants further expenditures of time, effort, and — most important of all — money.

If a report in Financial Times Deutschland, as referenced by Reuters, is correct, Nokia and Siemens would like to sell their stakes in the joint venture, but they are hard pressed to find a buyer for the tarnished asset.

Said sources familiar with the situation:

“Siemens has been wanting to get out for some time, Nokia now (wants out) too.”

“I cannot imagine that NSN in its current state could be of any interest to a financial buyer.”

Beaten like a drum by competitors Ericsson and Huawei in the wireless-networks market, Nokia Siemens Networks has been losing market share and money. In the July-September quarter, the joint venture sustained an operating loss of 53 million euros ($78.88 million), with losses expected to extend through the current quarter and likely beyond.

The joint venture is cutting costs wherever possible, including through outsourcing of managed application services, but the prospects for near-term revenue growth aren’t bright.

Not particularly enamored of its IT-related investments lately, engineering conglomerate Siemens AG apparently would like a complete exit from telecommunications.

Timing Doesn’t Favor NSN Bid for Nortel MEN Assets

Now that the $521-million stalking-horse bid from Ciena has been approved and the date has been set for the auction of Nortel’s Metropolitan Ethernet Networks (MEN) assets, attention has turned to which companies might challenge Ciena for the prize.

The auction will take place November 13, and vendors have until November 9 to tender counterbids.

In my view, there still is a strong possibility that Ciena’s bid will go unopposed. Of the likeliest contenders, Ericsson has the means, but probably not the inclination; Alcatel-Lucent’s CEO seems averse to growth by acquisition; Fujitsu is seen as a dark-horse candidate by some; and joint-venture Nokia Siemens Networks (NSN) has become a seemingly bottomless sinkhole for goodwill writedowns by its two owners, Nokia and Siemens AG.

Given the vast impairment charges NSN’s parent companies have incurred, I doubt either parent feels particularly inclined to ante up to the auction table. In all likelihood, NSN’s parent companies will take stock (literally and figuratively), try to staunch the joint venture’s hemorrhaging losses, and then decide whether and how to move forward. Now probably is not the time for NSN to ponder an acquisitive expenditure of more than half-a-billion dollars — perhaps more if Ciena raises the stakes.

Ericsson could get involved, and Alcatel-Lucent might reverse course, but one could make a persuasive and plausible case that Ciena will be the only company with a bid filed by November 9.

Ciena Must Avoid “Winner’s Curse” in Nortel Auction

Some market analysts now are expecting Ciena to have to fend off competing bids in its attempt to acquire Nortel’s Metropolitan Ethernet Networks (MEN) business, according to a Dow Jones Newswires article.

The article, also available here (for those of you without WSJ subscriptions), cites Nokia Siemens Networks and Fujitsu as potential bidders.

Employing a mix of cash and stock, Ciena’s $521-million stalking-horse (lead) bid for insolvent Nortel’s MEN assets is on the outer limits of what the company can support financially. If other bidders throw their hats into the auction ring, Ciena will be forced to withdraw from proceedings or put itself at risk by paying a prohibitive price to capture the prize.

Not everybody is sure the prize is worth owning, particularly at exorbitant cost. RBC Markets’ Mark Sue, among others, has warned Ciena not to fall victim to the “winner’s curse” of overpaying for the privilege of owning an asset.

No vendor should bid on the assets unless it actually wants to own them, but it is possible that a bigger, richer player than Ciena could indulge in brinkmanship, especially if it has inside knowledge of how badly (or not) Ciena wishes to own the Nortel assets. That other vendor would merely enter a higher bid in the knowledge that Ciena would escalate, thus paying more to triumph at auction.

Again, it’s not a course of action a vendor should follow if it has no interest in Nortel’s MEN assets, but it is something a Ciena competitor might consider if it has both interest in the assets and wants to make sure that Ciena would have to stretch itself to the financial breaking point to close the deal.

I’m just not convinced Nokia Siemens Networks or Fujitsu cares enough to play that game — and I don’t see anybody else on the immediate horizon. I am sympathetic to the analysts who see Nortel’s optical and Ethernet assets as mixed bag, replete with legacy products and technologies. Yes, there are some vibrant bright spots amid an otherwise drab product portfolio — and some of the customer relationships could prove lucrative if managed properly — but does anybody want to pay close to a $1 billion for this particular assemblage of Nortel assets?

I don’t think so, and I suspect any potential counterbid that might materialize would not be dramatically above the stalking-horse marker.

Ciena should have a clear idea, from the outset, as to precisely what price it is willing to pay. For the sake of Ciena shareholders, I hope that price is not much more than the current bid.

Ciena CEO Gary Smith has said Nortel’s MEN assets are perfect complements to Ciena’s core business and product portfolio. There are product overlaps, however. Smith also says his company could successfully integrate the Nortel assets, even though Ciena has struggled with past acquisitions.

Even if Smith is right on both counts, Ciena still needs to avoid overpaying for the Nortel properties. Overpaying probably would be defined by any amount much above the current bid.