JDS Uniphase closes SDL merger

JDS Uniphase closes SDL merger; cuts Q3 estimates

By Larry Barrett
Inter@ctive Investor
February 13, 2001 5:33 PM PT

 

Fiber-optic components giant JDS Uniphase completed its $13.5 billion merger with SDL Tuesday and then promptly warned that the combined company will miss analysts'' sales and earnings targets in the third quarter.

JDS Uniphase (Nasdaq: JDSU), which announced its intention to buy rival SDL (Nasdaq: SDLI) back in July, fell $2.13 to $38.50 ahead of the warning before gaining 50 cents a share in after-hours trading.

During a conference call with analysts, company executives said the combined company would earn only 17 cents a share in the quarter on sales of $1 billion.

First Call Corp. consensus was expecting a profit of 21 cents a share on sales of $1 billion.

Jim Liang, an analyst at WR Hambrecht, said the $1 billion estimate was for JDS Uniphase as a standalone company.

“You have to factor in between $90 million and $100 million in sales for SDL in the first part of this quarter minus whatever sales would have been derived from its Zurich unit," which was sold to Nortel Networks (NYSE: NT)," he said. "So, essentially, the combined company is going to come up about $60 million short of the consensus estimate."

Despite the sales and earnings shortfall, Liang said he would reiterate his "buy" rating on the stock.

"The issue here is this is a hyper-growth company," he said. "We''re seeing some inventory corrections by carriers and optical systems companies. But at this price, we think the stock is relatively attractive from a valuation standpoint."

Underscoring the valuation angle, shareholders are keenly aware this merger was valued at more than $41 billion when it was first announced.

JDS Uniphase shares peaked at $153.44 back in March before slumping to a low of $37 in January.

Company executives told analysts to expect sales of $6 billion in fiscal 2002—in line with current estimates—but warned that "continued uncertainty" in capital spending plans by major telecom carriers and customer inventory adjustments.

Chief Financial Officer Tony Miller said it was "too early" to predict earnings for fiscal 2002. Analysts are currently expecting a profit of $1.11 a share.

"At the end of our second quarter we said the near term prospects were affected by uncertain capital spending. These conditions remain as they were, or may have become somewhat less favorable," he said.

Susan Kalla, an analyst at BlueStone Capital, said she wasn't terribly fond of optical-equipment stocks at this juncture.

"These stock shouldn't be priced at such a premium when demand is going to level off," she said. "Management at all these companies is excellent, but you can't fight the forces of nature. When the tornado comes, it doesn't matter how well the nails are hammered into the boards."

Going forward, SDL will become a subsidiary of JDS. The new company will sport two business groups -- the Amplication and Transmission Business Group and the WDM, Switching and Thin Film Products Business Group.

Last quarter, JDS Uniphase beat the Street when it posted a profit of $208 million, or 21 cents, on sales of $925 million.

Twenty-nine of the 32 analysts tracking the stock maintain either a "buy" or "strong buy" recommendation.

 

 

Source: http://www.zdnet.com/zdnn/stories/news/0,4586,2685544,00.html

 

 

 

JDS Uniphase, SDL in $41 Billion Merger

[Nepean, CANADA] JDS Uniphase Corp. and SDL, Inc. agreed to a merger valued at approximately $41 billion based on closing stock prices. Subject to customary closing conditions, this deal means that SDL will operate as a wholly-owned subsidiary of JDS Uniphase.

Internet growth has created rapidly accelerating demand for bandwidth that is driving the build-out of telecommunication network capacity and flexibility.

This merger is expected to help create and deploy high-capacity, flexible optical networks by accelerating the delivery of products and building blocks of optical networks. These include optical amplifiers, lossless optical switches, and integrated optical modules.

JDS Uniphase and SDL share a common vision to provide customers with innovative and technologically advanced products that enhance their ability to deliver next-generation optical systems, according to Don Scifres, SDL chairman, president and chief executive officer. He continued, "We also expect to enable the migration from today's hybrid integration and module level products to tomorrow's truly integrated system on a chip."

SDL's products transmit Internet, data, voice, and video information over fiber optic networks for telecommunications, cable television and satellite communications applications. They enable customers to meet the bandwidth needs of increasing Internet, data, video and voice traffic by expanding their fiber optic communications networks much more quickly and efficiently than would be possible using conventional electronic and optical technologies.

JDS Uniphase designs, develops, manufactures and distributes products for the fiber optic communications market.

 

From JDS Uniphase 2000 Annual Report:

 

On July 10,2000,we signed a definitive agreement to merge with SDL, Inc. ("SDL'') in a transaction valued at approximately $41.0 billion. The merger agreement provides for the exchange of 3.8 shares of our common stock for each common share of SDL. Completion of the transaction is subject to customary closing conditions, including the approval of stockholders' of both companies and regulatory approvals. Following completion of the transaction, SDL will operate as a wholly-owned subsidiary of JDS Uniphase. SDL designs, manufactures and sells semiconductor lasers, laser-based systems, and fiber optic related solutions.

 

The Company expects to record a charge for in-process research and development (""IPRD''), currently estimated at approximately $185.0 million, in the quarter in which the acquisition closes. In addition, the Company expects to record significant goodwill and intangible assets, which it estimates will increase amortization of purchased intangibles by approximately $8.4 billion per year for the five-year period subsequent to the acquisition. The impact of the potential acquisition will significantly increase operating results in absolute terms, but the Company does not expect a significant impact, in relative terms, on results of operations.

 

 

 

 

 

 

JDS Uniphase Acquisition May Cause Heartburn
by Jay Ritter | 02:14 PM | 07-10-00 | E-mail Article to a Friend

JDS Uniphase JDSU may have bitten off more than it can chew with a plan to acquire its largest rival. With the ink barely dry on its $18 billion acquisition of E-Tek Dynamics ETEK, JDS agreed Monday to gobble up SDL SDLI in a blockbuster $41 billion stock deal. JDS is already the undisputed leader in the white-hot fiber-optic components arena, and the combined JDS-SDL juggernaut would dwarf the next-largest independent supplier.

While the E-Tek merger was recently approved by the Department of Justice with only minor conditions, it seems likely that regulators will take a closer look at the SDL deal, as it will further thin the ranks of independent optical-components companies. Major telecommunication-systems suppliers such as Lucent Technologies LU, Nortel Networks NT, and Alcatel ALA have significant internal optical-component operations, but the Justice Department may be concerned over JDS' growing industry dominance. European regulators will also likely take a hard look at the deal, especially considering that one of the largest remaining independents is U.K.-based Bookham Technology BKHM.

The companies will argue that the deal is good for customers because together they will be better able to expand output of critical components needed for next-generation communication networks. They will also insist that there is plenty of competition in key areas where their product lines overlap, including pump lasers used to boost the strength of light signals traveling over long distances in communication networks.

Based on Friday's closing prices, JDS is offering a hefty 50% premium, or a whopping 260 times estimated 2001 earnings, for SDL. SDL's stock has already been on a tear, doubling from its April lows based on the expectation of another blowout quarter and rumors of a potential takeover bid from Corning GLW. The terms of the deal involve the exchange of 3.8 shares of JDS Uniphase for each share of SDL stock outstanding. A $1 billion breakup fee makes it unlikely that another suitor will be able to top JDS' bid.

Although the financial impact of the merger is uncertain at this point, the combined company will be operating at a pro forma annual revenue run rate of about $2.7 billion. The long-term outlook is strong, but preliminary estimates indicate that there may be modest near-term earnings dilution that could be mitigated by the strength of current business for both companies.

JDS has had remarkable success in integrating its past acquisitions, partially owing to its ability to retain key management and engineering personnel. In this case, CEO Don Scifres will stay on to run SDL as a wholly-owned subsidiary and will become cochairman of JDS Uniphase along with newly appointed CEO Jozef Straus.

Source: http://news.morningstar.com/news/Wire/0,1230,2211,00.html