Scrutiny Ahead for JDS Uniphase-SDL Deal
By Jeremy Pelofsky
WASHINGTON (Reuters) - Fiber optics giant JDS Uniphase Corp.'s (Toronto:JDU.TO - news) (NasdaqNM:JDSU - news) proposed $41 billion acquisition of rival SDL Inc. (NasdaqNM:SDLI - news) will likely face tough scrutiny by U.S. antitrust regulators on issues of competition and innovation, analysts and lawyers said on Monday.
Canada-based JDS Uniphase, in its quest to meet rising demand and increase capacity, plans to gobble up competitor San Jose, Calif.-based SDL, which has developed laser equipment that would allow the transmission of multiple light signals over a single fiber.
``It is going to get unbelievable scrutiny. It would create an absolutely dominant player,'' said Drew Peck, analyst at Boston-based SG Cowen. ``SDL is no. 2 overall (in providing components for the manufacture of fiber optic equipment) after JDS.''
Regulators will likely examine whether the companies overlap in areas of production, competition in the market, how big a market share the new company will have and if the combination will hurt future innovation, according to antitrust lawyers and experts.
One area of concern may be an overlap in the 980 nanometer laser pump chip market by the two companies, according to a daily note issued by Credit Suisse First Boston.
``The agencies are going to have to get into the details of what product lines overlap, if any, how concentrated are those industries where there is an overlap, and the usual analysis,'' said Bert Foer, president of the American Antitrust Institute in Washington.
Less than three weeks ago the U.S. Justice Department, which will likely examine this acquisition, set tough conditions in approving JDS Uniphase's $18.7 billion purchase of E-Tek Dynamics Co.
E-Tek and JDS Uniphase would have controlled about 80 percent of the world's output of thin-film filters, so antitrust regulators demanded the two companies cancel certain contracts for the filters which allow more information to be packed into the optic fibers.
Scrutiny Could Include Innovation
Regulators also may be drawn to determining whether the combination of JDS Uniphase and SDL would stifle innovation, according to one antitrust lawyer.
``They will try to answer the questions of whether the merger would lead to less innovation and deprive customers of new products that would otherwise be available,'' said Don Farmer, a lawyer at Reed, Smith, Shaw & McClay LLP in Washington.
Still, JDS Uniphase executives were optimistic the company would be able to close the deal by December, and that antitrust regulators should have relatively few worries about market concentration.
``There's really very little overlap,'' said Jozef Straus, co-chairman and chief executive of JDS Uniphase. ``We feel that, with our technological synergies, we'll bring products closer to our customers.''
However, the stocks of the two companies diverged after the merger announcement with JDS Uniphase dropping more than 10 percent -- in part because of concerns about regulatory approval -- and SDL soaring almost 10 percent.
JDS Uniphase shares were down 13-3/8 to 102-13/16 while SDL was up 31-3/16 to 326-1/2 in mid-afternoon trading on Nasdaq.
``We think ultimately that this merger will receive clearance,'' Anthony Muller, JDS Uniphase chief financial officer, told Reuters. |
