Alcatel Plans Complaint About JDSU's Deal With Etek
cnetinvestor.com.
Alcatel Plans Complaint to U.S. About JDS Uniphase's E-Tek Buy
3/22/00 9:58:00 AM
Source: Bloomberg News
Paris, March 22 (Bloomberg) -- Alcatel SA, Europe's No. 2 phone-equipment maker,
said it will complain to U.S. antitrust enforcers that JDS Uniphase Corp. will have the
power to raise prices if the biggest maker of fiber optic components is allowed to buy
rival E-Tek Dynamics Inc.
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LU 63.25 -3.75
ETEK 232.00 2.00
NT 132.56 3.06
JDSU 130.00 3.00
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JDS Uniphase agreed in January to buy E-Tek in a transaction now valued at $19.7
billion. The U.S. Department of Justice is scrutinizing the proposal and interviewing
customers of both companies to determine whether the acquisition would hurt
competition in the market for parts that boost the capacity of fiber-optic networks.
Alcatel, E-Tek's No. 1 customer, wants the acquisition delayed until it can find another
source of components, said Alcatel USA Vice President of Product Strategy Paul
Harrison. That process that could take as long as a year, he said. (WHAT A CROCK!)
'On some components there are no other suppliers,' Harrison said. 'We don't want to
get into a situation where there's only a single supplier.'
Alcatel fears that JDS Uniphase will increase prices of some products once it
completes the purchase. Currently, Alcatel can pressure the companies -- its two
biggest suppliers of the parts - - to keep prices down by offering more business to one
than the other. E-Tek got a third of its $72.5 million in sales from Alcatel in its fiscal
second quarter, which ended Jan. 1.
Alcatel, based in Paris, is the biggest maker of fiber-optic transmission systems used
to send large amounts of phone and data traffic back and forth undersea. It also makes
systems for land networks and plans to double its sales of those products in North
America to $400 million this year, targeting phone companies such as MCI WorldCom
Inc., Sprint Corp., Qwest Communications International Inc. and Level 3
Communications Inc.
The spread between the value of JDS Uniphase's offer for each share of E-Tek stock
and the trading price of an E-Tek share has widened from $28.77 to $50.10 since
Monday, an indication of market uncertainty about the transaction's prospects of getting
antitrust clearance. JDS Uniphase shares rose 3 to 130 in early afternoon trading.
E-Tek rose 4 to 234.
Not Contacted
Harrison said he hasn't been contacted by Justice Department investigators and didn't
know if other Alcatel officials had been interviewed by phone or in person.
Lucent Technologies Inc., the world's No. 1 maker of phone equipment and both a
competitor and customer of JDS Uniphase and E- Tek, yesterday said it had been
questioned by Justice Department lawyers over the phone. Lucent said it took 'no
formal position' on the combination. Nortel Networks Corp., the biggest maker of
fiber-optic equipment, declined to comment.
JDS Uniphase and E-Tek haven't increased the prices they charge Alcatel since they
announced the acquisition on Jan. 17, Harrison said.
JDS Uniphase has tried to address Alcatel's worries by telling the company that it will
be a valued customer after the E- Tek acquisition. Harrison said he received
assurances from JDS Uniphase President Jozef Straus, who also visited Alcatel Chief
Executive Serge Tchuruk.
Dependency
Still, Alcatel is concerned about getting enough thin-film filter components for its wave
division multiplexing, or WDM, systems. The filters are used to combine the beams of
multiple lasers on a single strand of fiber, boosting the capacity of optical networks.
Once combined, JDS Uniphase and E-Tek, both based in San Jose, California, would
dominate the WDM component market.
JDS Uniphase and E-Tek also struck a side agreement on Jan. 17 to supply each other
with needed components until they complete the acquisition.
Alcatel's problem is that it has developed a dependency on both JDS Uniphase and
E-Tek as its only suppliers of certain parts, Harrison said. It will be difficult to find
other suppliers to meet Alcatel's strict quality standards, he said.
The company likely would try to develop Corning Inc. as a second supplier, as well as
look to smaller companies, Harrison said. Corning, the biggest maker of optical fiber,
last month agreed to buy NetOptix Corp. in a transaction now valued at $2.3 billion to
gain the filter production it needs to make more WDM components.
JDS Uniphase is 'fully cooperating with the Justice Department and providing them
with whatever information they require to evaluate the transaction,' Senior Vice
President of Business Development Mike Phillips said yesterday. The company
declined to comment on what its customers say to the Justice Department. |
