Bankruptcy courts cleared on Wednesday Ciena Corp's acquisition of a unit of bankrupt Nortel Networks Inc for $769 million after fighting off a legal challenge by Nokia Siemens Networks.
Network equipment maker Ciena said it expects the deal -- which will double its size and increase debtload -- to close in the first quarter of 2010.
Ciena trumped an offer by Nokia Siemens and its financial partner, One Equity Partners, with an auction-winning bid of $530 million in cash and $239 million in convertible securities for Nortel's optical networking and carrier ethernet business.
On Tuesday, the 50-50 joint venture of Nokia of Finland and Siemens of Germany said it was ready to raise its offer to $810 million in cash, if the auction, which ended in late November, was reopened.
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.
Nokia Siemens suffered a setback hours earlier when the judges ruled the joint venture did not have standing to object to Ciena's bid.
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.
Nortel declared bankruptcy early in the year and has been auctioning off its businesses to raise money to pay creditors. Its lawyer, James Bromley of Cleary Gottlieb Steen & Hamilton, had argued the auction should not be re-opened.
We can't do that. It's not fair to employees, to customers, to the company and not fair to the counterparties, Bromley said.
Shares of Ciena closed up 4.9 percent at $12.88 on Nasdaq, helped by Nokia Siemens' challenge as analysts say Ciena may have trouble integrating the Nortel assets.
The case is Nortel Networks Inc, et al, No. 09-10138 in the U.S. Bankruptcy Court for the District of Delaware.
(Additional reporting by Tarmo Virki in Helsinki; editing by Leslie Gevirtz and Muralikumar Anantharaman)