JDS, Uniphase form high-tech giant
Proposed $4.7-billion deal, the second largest
in industry history, would create a fibre-optics powerhouse
Friday, January 29, 1999
SIMON TUCK and LAWRENCE SURTEES
The Globe and Mail
Ottawa and Toronto -- SIMON TUCK
in Ottawa
LAWRENCE SURTEES
in Toronto
Fast-rising JDS Fitel Inc. is morphing into a giant, saying yesterday it will merge with Uniphase
Corp. in a deal worth $4.7-billion.
The proposed merger -- the second-largest deal in Canadian high-tech history -- will create a
fibre-optics powerhouse with a market value of nearly $10-billion and fiscal 1999 sales that
analysts estimate will approach $600-million (U.S.).
"We've given birth to a bouncing new baby -- a very large new baby," said Zita Cobb, JDS's chief
financial officer. "Both sides have to stay good and get better."
Nepean, Ont.-based JDS Fitel said late yesterday that it and Uniphase of San Jose, Calif. will
combine in "a merger of equals" to create a new firm, JDS Uniphase Corp. Executives from both
companies said yesterday the deal will be a good one because their two operations have virtually
no product overlap.
JDS investors will receive 0.50855 shares of the new company for each share they currently hold,
a 19-per-cent premium on Wednesday's closing price of $58.50 (Canadian).
JDS shares rose $1.50 yesterday on the Toronto Stock Exchange before trading was halted in late
afternoon, about an hour before the merger was announced.
Uniphase shares rose $3.62 (U.S.) to $80.75 on the Nasdaq Stock Market before trading was
halted.
Furukawa Electric Co. Ltd. of Japan, which holds a 52-per-cent stake in JDS, said it endorsed the
deal and would be selling 3.5 million of its 40.5 million shares.
The global fibre-optics market is valued at about $3-billion this year and is expected to reach
$6.8-billion in 2004. JDS said the merged company's sales, measured over the past 12 months,
would have been 50 per cent greater than the combined sales of the industry's three other public
companies.
The structure of the merged company will reflect the nearly identical sizes of the two companies. It
will be based in both San Jose and Nepean, just outside Ottawa, and its leadership will include the
key players from both sides. Jozef Straus, president, chief executive officer and founder of JDS,
will become co-chairman, president and chief operating officer. Kevin Kalkhoven, chairman and
CEO of Uniphase, will become CEO and co-chairman of the new company. Both companies will
nominate half of the new board.
The new company will be traded on both the Toronto Stock Exchange and the Nasdaq Stock
Market and will have 3,600 employees in eight countries. JDS has 2,400 employees in the Ottawa
area.
JDS's operations are more labour intensive than Uniphase's.
The two sides said they expect to continue to increase both payrolls as their share of the
fast-growing market jumps.
JDS officials also said the merger won't affect their plans to expand, including a new office in
Nepean.
The deal is expected to close by the end of June with the new company's products headed for
market within six months from now.
Gurinder Parhar, telecommunications research analyst at HSBC James Capel Canada Inc. of
Toronto, said the deal will give rise to the "biggest independent provider of wave division gear" to
the burgeoning telecommunications equipment market. Leading customers for their gear include
Canadian global high-tech giant Northern Telecom Ltd. of Brampton, Ont.
"Both companies were going to try to get in to each other's turf anyway," Mr. Parhar said. "Now
they can exploit each other's synergy instead of competing head-to-head."
He said the product lines of JDS and Uniphase "complement each other," rather than overlap. "It's
like two auto part makers who sell to all the same big car makers, but one part maker mostly
makes bumpers and the other makes window glass. And the only area that they compete directly in
is making side-view mirrors."
Both companies make components for high-speed fibre-optic communication networks. Fibre-optic
communications uses lasers to send vast amounts of information at the speed of light along
hair-thin strands of glass.
Uniphase makes specialized lasers that boost the information-carrying capacity of fibre-optic lines
by allowing the simultaneous transmission of multiple light beams along the same fibre. Because
those light beams each use a different wavelength, that technique is called wave division
multiplexing.
JDS mostly makes non-laser electronic components needed for those same lightwave multiplexing
systems. Uniphase also makes medical and printing lasers.
Mr. Straus said some customers had suggested it would be easier if the two companies were
combined. "They'd rather have the complete product, instead of A from Uniphase and B from
JDS."
Mr. Straus said the possibility of a merger was first discussed in February and heated up later in
the year when he called Mr. Kalkhoven while on a hiking trip in California. Neither has held
merger or takeover discussions with any other players, officials said.
The two companies, both founded in the early 1980s, have another thing in common: a red-hot
share price. JDS's share price has more than quadrupled in the last four months. And JDS
shareholders will get another boon from this deal.
The deal, announced after markets closed, is the second monster deal to rock Canada's high-tech
sector in less than a year. Northern Telecom Ltd. purchased Bay Networks Inc. in August for
$6.7-billion, the only Canadian high-tech deal larger than the JDS-Uniphase merger.
JDS and Uniphase each have had annual revenue growth of more than 45 per cent and, when
merged, will see their sales for fiscal 1999 almost double to more than $575-million, Mr. Parhar
estimates.
Both companies have almost identical market capitalization and revenue, according to Mr. Parhar's
estimates. He forecasts JDS will post sales of $275-million for fiscal 1999 ended in May and
Uniphase will have revenue of $300-million for its fiscal year which ends in June.
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