Ciena buys Cyan for its software smarts

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Acquisition fever continues in the optical space with the news that Ciena has entered into a definitive agreement to acquire Cyan, a developer of next-generation software and platforms to enable open, agile and scalable software-defined networks.

Under the terms of the agreement, Ciena will acquire all of the outstanding shares of Cyan in a cash and stock transaction currently valued at approximately $400 million (or $335 million, taking into consideration the estimated cash held by Cyan).

Calling it “an incredibly exciting development”, Ciena says the acquisition will accelerate its strategy for virtualised networks, while also giving it access to a growing metro packet-optical hardware business that will drive meaningful revenue and a complementary base of key customers.

Cyan started out as a hardware company, launching its Z-Series metro packet-optical systems in 2009, but has more recently made a name for itself in software aimed squarely at the nascent market for software defined networking (SDN) and network functions virtualisation (NFV). Cyan’s Blue Planet software platform provides multi-vendor network and service orchestration and network management software with advanced visualisation.

Cyan’s software addresses a fundamental shift in the industry as carriers look to turn the network into a software-enabled platform that is more capable of driving on-demand business models. This shift takes optical transport vendors to rethink away from a “walled garden” model of network management and platforms towards an open ecosystem-based approach, and Cyan’s vendor agnostic approach is key.

“We have been fundamentally changing our business through openness, through software, and through an ecosystem-based approach. In doing so, essentially we are leading a transformation of the network from the delivery of pure capacity to the creation of capability on-demand. Our acquisition of Cyan is a highly-targeted investment in this direction,” explained Ciena’s CEO Gary Smith on a conference call discussing the acquisition.

This acquisition advances and accelerates Ciena’s software strategy, which started with the introduction of its OPN open architecture and was extended with the launch of its Agility software division just last year. Ciena had been on a similar development path for these offerings, the company said. However, the addition of Cyan speeds up its time to market for a complete solution, whilst expanding Ciena’s ecosystem of NFV partners, Smith added.

The company did note that Ciena’s own platforms have not yet been fully integrated with Cyan’s Blue Planet software – something that no doubt will soon be rectified.

From Cyan’s perspective, Ciena provides it with a more scalable route to market. “Our strong NFV platform, operational scale and support, global channel and customer relationships, particularly with Tier 1 and web-scale providers, all comprise a logical complement to Cyan's strengths,” said Ciena’s Smith.

Cyan seems pleased with the deal. “Ciena and Cyan share the common belief that disruptive innovations and a customer-first approach are key ingredients to enable network transformation,” said Mike Hatfield, president of Cyan. “We are confident that our combined efforts will accelerate this transformation adding significant value for our customers.”

When the deal closes, Cyan shareholders will receive the equivalent of 0.224 shares of Ciena common stock for each Cyan share that they hold, 89 per cent delivered in Ciena common stock and 11 per cent in cash based on the value of Ciena common stock at closing. This values Cyan at $4.75 per share of common stock based on Ciena’s 20-day volume weighted average price up to 1 May, representing a 30 per cent premium over Cyan's closing price on the same day of $3.65.

In connection with the acquisition, Ciena will assume Cyan’s $50 million in outstanding amount of 8.0% Convertible Senior Secured Notes that were issued last December and due 2019.

The transaction is expected to close during Ciena’s fiscal fourth quarter 2015 and is subject to the usual regulatory approvals as well as approval by Cyan stockholders. The boards of directors of both Ciena and Cyan have approved the transaction, and certain officers and directors and affiliated stockholders collectively holding over 40% of the outstanding shares of Cyan, have signed voting agreements committing to support the deal.


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