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In a deal reminiscent of the high-tech boom of a few years go, Catena Networks Inc. - a private Ottawa firm with about 220 employees - has agreed to be taken over in a all-stock transaction valued at $486.7-million (U.S.).

The telecom equipment deal is one of two acquisitions announced Thursday by Ciena Corp., a Maryland-based telecom equipment maker that also announced plans to buy New Jersey-based Internet Photonics Inc. for $150-million.

The transactions were reminiscent of deals in the 1998-2000 technology boom, when companies such as Nortel, Lucent Technologies, Cisco Systems and Time-Warner made high-priced acquisitions with their stock rather than cash.

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Mergers and acquisitions activity cooled drastically after the Internet and telecommunications investment bubbles burst, starting in early 2000, creating downward spiral in the tech sector that only began to show signs of renewal last year.

Duncan Stewart, Tera Capital's technology portfolio manager, said Ciena's acquisition of Catena is a sign "that we have moved out of that bear market phase."

"This is certainly the first time in a while that an American company has bought up a Canadian diamond in the rough," Mr. Stewart said.

Founded in 1998 by five former Nortel employees, Catena builds "integrated broadband access systems" that enable phone companies to evolve their networks so they can offer voice, data and video services profitably.

The private Ottawa-based company, which also has offices in Research Triangle Park, N.C., has been supported by $192-million in venture financing from partners that include BCE Capital, JPMorgan Partners and Goldman Sachs Group.

The deals were announced as Ciena, a smaller rival of Nortel Networks, released its latest financial report that shows it continues to struggle.

Ciena's revenues in the three months ended Jan. 31 were just $66.4-million, a 5.8 per cent decline from the same period a year before and well below Ciena's expectations of up to 10 per cent revenue growth in the quarter.

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"These expectations were not met because a single order related to long haul transport products was not received by the end of the quarter. We now expect to receive this order in the second quarter of fiscal 2004," Ciena said.

Despite Ciena's recent troubles, Catena's president and CEO Jim Hjartarson said in a statement that it made financial sense for his company to join with Ciena, which will continue to operate the Ottawa-based company as a separate division.

"By uniting with Ciena, we immediately and dramatically enhance the scope of Catena's sales and support resources - a task that otherwise would have required significant investment over several years," Mr. Hjartarson said in a release.

Under the acquisition agreement, subject to shareholder and regulatory approvals, Ciena will issue 77.5 million of its shares to pay for all of Catena and 24.4 million shares to buy Internet Photonics.

That means Catena shareholders will end up as shareholders of Ciena. Its stock closed at $6.17 on the Nasdaq market, down 11 cents for the day. Its 52-week range was $4.19 to $8.14 US.

Gary Smith, Ciena's president and chief executive, said in a statement Thursday that the two acquisitions are part of a strategy seeking "long-term revenue growth and sustained profitability" by broadening its product offerings.

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"In the simplest of terms, these acquisitions enhance the scope of the solutions we can offer our customers and further extend Ciena's network reach and presence," Mr. Smith said.

"More strategically, these acquisitions are part of Ciena's vision to offer our customers a comprehensive set of solutions that enable them to realize a true, all-service network," Mr. Smith said.

Ciena said it expects to complete the Catena and Internet Photonics transactions by the end of July, when its fiscal third quarter of fiscal 2004 ends.



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