Ciena snaps up Cyan for $400M, strengthens SDN, NFV capabilities

Ciena announced it will acquire Cyan for $400 million in cash and stock, a deal that will boost the vendor's portfolio of software defined networking and network functions virtualization products.

Per 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, net of estimated cash acquired) and inclusive of Cyan's outstanding convertible notes on an as-converted basis. In addition, Ciena will assume Cyan's $50 million in outstanding principal amount of 8.0 percent Convertible Senior Secured Notes due 2019. 

Gary Smith, CEO of Ciena, said during the conference call announcing the transaction that Cyan brings a complementary customer base. It also provides multi-vendor network and service orchestration and next-generation network management software with advanced visualization.

"There are three elements to their business, including the metro hardware, which is having good momentum and is a complementary customer set there and on the software side they pioneered a lot of the early orchestration of NFV/SDN-type requirements and there's immediate value there," Smith said. "On the software side, they pioneered a lot of the early orchestration of NFV/SDN-type requirements and that coupled with our NFV platform is very complementary to us and they have a lot of good traction with this and the timing is right to put these elements together and create a complementary solution for on-demand services."

Although Cyan has established itself as a packet-optical hardware player, the real value of the deal for Ciena lies in the SDN/NFV and software-related experience Cyan brings to Ciena's fold, particularly with large service providers like CenturyLink (NYSE: CTL).

"You will have seen that Cyan announced they were partnering with CenturyLink as one of the early adopters of these technologies," said Francois Locoh-Donou, senior VP of global products group at Ciena. "It's representative of what we're seeing in the market that a big challenge for carriers today is still trying to find more automation and velocity to deliver services in the market and Cyan's Blue Planet capabilities address that need across a number of carrier requirements."

Locoh-Donou added that "we believe it's a market that is starting to move and we believe in the next 12-24 months we're going to see a number of decisions that carriers will make on how to deliver more automated services."

Cyan also has established itself as a key emerging player in the metro packet optical space, one where Ciena also plays a role. Locoh-Donou said the team will look at what elements to discontinue over time.

"There is some overlap between the platforms," Locoh-Donou said. "Ciena can address the end-to-end needs from the edge of the networks to the core of the network and Cyan has mostly focused on the metro packet optical space, but Ciena has an offering in that space. Over time, we will eliminate overlapping investments and we'll look to realize some synergies from the integration, but it's too early to get into the specifics of the platforms at this stage."

In March, Cyan signed a deal to provide its Blue Planet NFV Orchestrator to deliver services to CenturyLink's growing base of large enterprise and small to medium-sized business customers. Unlike Ciena, which is an established packet optical vendor in CenturyLink's network, Cyan does not currently supply metro optical platforms to the telco.

Besides CenturyLink, this deal could also bode well for Ciena to respond to SDN/NFV needs from Verizon (NYSE: VZ), one of its other Tier 1 packet optical customers. Earlier this month, Verizon announced that it has employed the help of five of its key vendor partners for its SDN strategy: Alcatel-Lucent (NYSE: ALU), Cisco, Ericsson (NASDAQ: ERIC), Juniper Networks and Nokia (NYSE:NOK).

Separately, Verizon tapped Ciena and Cisco to build out its metro optical network. Having Cyan's Blue Planet software on hand could help Ciena potentially get into the front of the line as Verizon moves ahead with secondary SDN/NFV partners.

Another question is whether Ciena's acquisition of Cyan will affect the current relationship it has with Ericsson.

Through that relationship, Ciena and Ericsson have been providing optical and software systems to a host of large customers, including Telstra. The company said that this acquisition will not alter that relationship.

"We don't believe this has any impact on our relationship with Ericsson," said James E. Moylan Jr., senior VP of finance and CFO at Ciena. "That relationship is going well and we don't think this disturbs or accelerates it any way."

Set to close during Ciena's fiscal fourth-quarter 2015, the acquisition is subject to certain approvals of Cyan stockholders, U.S. regulatory approvals and other customary approvals. Ciena and Cyan's boards of directors have both approved the transaction. 

For more:
- see the release

Related articles:
Verizon taps Ciena, Cisco to build its 100G US metro network
CenturyLink, Ciena conduct live Terabit trial in central Florida
CenturyLink taps Cyan to deliver NFV-based services to enterprise, SMB customers
Infonetics: Ciena, Infinera, Adva benefit from uptick in data center spending
Windstream brings Cyan into its 100G regional, metro networks

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