JDS Uniphase to acquire E-Tek in $15-bn deal

JDS Uniphase to acquire E-Tek in $15-bn deal

Sarah Edmonds
SAN JOSE 18 JANUARY

THE WORLD’S leading fibre optic equipment maker, JDS Uniphase Corp, on Monday extended an aggressive expansion and unveiled plans to take over rival E-Tek Dynamics Inc in an all-stock deal worth roughly $15 billion.

Under the agreement, E-Tek holders will get 1.1 shares of JDS for every E-Tek share held and E-Tek, also a player in the world of fibre optic equipment, will become a wholly-held unit of JDS once the deal is completed. The merger is conditional upon E-Tek shareholder and regulatory approval, the companies said.

JDS and E-Tek also announced that they signed a mutual supply deal to let them immediately boost the supply of certain products to customers. The companies said the decision to unite was driven by the ‘unprecedented growth’ of the telecom industry and the insatiable hunger of telecommunications service providers for bandwidth.

“As a result of the explosive demand for bandwidth, service providers have accelerated deployment of fiber optic systems in their networks,” the companies said.

JDS, co-based in Nepean, Ontario, and San Jose, California, and San Jose-based E-Tek said their marriage will allow them to grow operations faster and bring more volume and a broader range of products to customers more swiftly.

“As a combined entity, we expect to have deeper resources to continue our strategy of expanding our scale and scope to enable the industry to fulfill the optical promise of unlimited bandwidth,” Kevin Kalkhoven, JDS co-chairman and chief executive said in a statement.

Fund manager Duncan Stewart at Tera Capital in Toronto said the deal was ‘probably positive’ for JDS but it could meet with regulatory roadblocks given the dominant position of the two players in the fiber optic gear market. —Reuters

JDS has been on a shopping spree in recent months. It will complete in the first quarter its $2.8 billion all-stock acquisition of Santa Rosa, California-based supplier Optical Coating Laboratory Inc, announced in November last year. And in December, the company agreed to buy Nepean, Ontario-based Oprel Technologies Inc for an undisclosed sum.

E-Tek has about 2,450 employees and posted sales of $72.5 million in its second quarter ended January 1, 2000. JDS, the product of a merger last year between California-based Uniphase Corp and Ottawa’s JDS Fitel, employs more than 8,200.

Its sales totalled $230.1 million in its first quarter ended September 30, 1999.—Reuters

Source: http://www.economictimes.com/190100/19tech05.htm

 

JDS Uniphase Faces A Rough Phase
By Larry Barrett,, Inter@ctive Investor
May 24, 2001 5:22 PM ET

JDS Uniphase spent billions in the past year bolstering its position in the fiber-optic component business with acquisitions, but now the company must overcome significant challenges created by its binge.

Making matters more difficult, JDS Uniphase must do so without the benefit of a booming economy or the deep pockets of Wall Street investors.

"Strategically, JDS Uniphase has all the pieces to the puzzle," said Robert Tango Jr., an analyst at William Blair. "But what's critical now is streamlining all these separate parts into one efficient machine. That's no small task. How the management team executes during this downturn will determine how effective this aggressive acquisition strategy was."

Analysts say that although the pricey acquisitions of SDL, E-Tek Dynamics, Cronos Integrated Microsystems and others will eventually pay huge dividends, JDS Uniphase is already paying a steep price of its own in the form of massive layoffs and disappointing sales and earnings in recent quarters.

Most disconcerting for shareholders is a 78 percent plunge in the company's stock price in the past seven months.

With spending on telecommunications equipment at a standstill--and likely to remain sluggish for the next two quarters--JDS Uniphase finds itself in the awkward position of having to integrate the large pieces it's assembled while simultaneously investing in the next generation of optical equipment that its customers will covet when they eventually loosen their purse strings.

"Slowing demand has caused us to take a number of actions to cut costs, decisions that aren't easy to make," said Jeff Wild, a spokesman for JDS Uniphase. "On the other hand, this slowdown has forced and allowed us to take a breath and do the realignment we needed to do after adding these companies. That's something we weren't able to do as effectively when business was booming and everything was happening so fast."

The company also has to answer to shareholders who weren't impressed by disappointing third-quarter results, the reduced expectations for the fourth quarter, or the fact that the company declined to provide substantial guidance for fiscal 2002.

At this point Wall Street analysts expect total sales of $3.2 billion in fiscal 2002, down slightly from the $3.3 billion JDS Uniphase will likely report in the current fiscal year.

"The truth is, no one knows when this industry is going to recover," Tango said. "At this point I'd say there's a limited downside risk to the stock. Saying that, when the industry does turn around, JDS will be in pretty good shape because of the deals they've made."

In its third quarter, JDS Uniphase met analysts'' lowered expectations when it posted a profit of $160 million, or 14 cents a share, on sales of $920 million. Including a host of one-time charges, it actually posted a net loss of $1.3 billion, or $1.13 a share.

Most of those charges were related to acquisitions, notably the $13.5 billion deal that brought rival SDL and its considerable manufacturing capacity into the fold in February.

Overcapacity?
However, it's that added manufacturing capacity that could be a cause for concern.

Glutted inventories throughout the network equipment sector have resulted in tumbling profit margins and, as Cisco Systems is painfully aware, enormous inventory write-offs for obsolete parts.

"At this point, I''m not sure about any excess inventory because most of the inventory write-offs would be something our customers would have to deal with," JDS Uniphase's Wild said, adding that it would not be incorrect to expect some inventory write-offs for the company in future quarters.

Along with the added manufacturing capacity, the SDL deal added more so-called active optical components such as lasers to JDS Uniphase's extensive catalog of "passive" components, which include devices such as couplers and splitters.

"That's the main difference between what JDS Uniphase has done and what Cisco did," said Mark Langley, an analyst at Epoch Partners. "JDS went after the capacity because that was their top priority, while Cisco bought companies mainly for their technology. As we saw with Monterey and some of the other deals, that strategy didn't exactly pan out for Cisco."

In June 2000, JDS acquired communications-equipment maker E-Tek Dynamics in a deal then valued at more than $15 billion, bolstering its product line.

At the time, Merrill Lynch gave the deal an authoritative thumbs-up, saying "whatever a company can make, it can sell," and adding that "any increase in manufacturing capacity is a positive that may help eliminate some bottlenecks."

Almost one year later, sluggish demand has held JDS Uniphase back from capitalizing on the additional capacity it paid so much to acquire in the first place. This manufacturing capacity raises the very real prospect that JDS Uniphase, too, might have to write off some of its excess inventory, analysts said.

"Never say never," Langley said. JDS Uniphase "isn't saying anything about inventory right now. But with the visibility so limited, it wouldn't be a complete surprise. In this industry, obsolescence is the name of the game."

A recent study by the Dell'Oro Group indicates that, despite the current communications industry downturn, the demand for faster Internet networks will cause the worldwide optical transport market to double to $57.3 billion by 2005 from $23.5 billion in 2000.

More buying ahead?
JDS Uniphase exited the third quarter with $2 billion in cash and short-term investments, giving rise to rumors that it might be interested in acquiring Lucent Technologies'' fiber business, long rumored to be for sale.

But analysts said that''s less likely to occur in the current economic landscape, especially considering the huge premiums the company recently paid for SDL and E-Tek.

Analysts said JDS Uniphase is even more cautious about making more acquisitions after selling its laser-chip subsidiary in Switzerland to competitor Nortel Networks to close the SDL merger.

Nortel traded $2.5 billion of its common stock for the chip business, only to issue a profit warning a week later that sent its shares into a tailspin. At the time the deal was consummated, Nortel shares were trading at $35.51; its shares now trade below $15.

"Their acquisition strategy worked well in its time, but going forward it's a much different world," Langley said. "We'll see how well JDS Uniphase can adapt."

Source: http://www.zdnet.com/intweek/stories/news/0,4164,2765185,00.html