Hot Demand Drives SDL-JDS, Other Deals
Monday July 10 4:15 PM ET Analysis:
By Ian Simpson
NEW YORK (Reuters) - The Internet's red-hot demand for fiber-optic parts has created an atmosphere of merger-mania for deals like JDS Uniphase Corp.'s (NasdaqNM:JDSU - news) $41 billion takeover of SDL Inc. (NasdaqNM:SDLI - news), but there may not be many more companies left to buy, analysts said on Monday.
Future takeovers are unlikely to be as big as the SDL deal announced on Monday. That transaction was by far the largest as companies battle to keep up with demand for components that send data over high-speed networks.
``I think what you'll see is continued acquisitions,'' said Alex Benik, an analyst with The Yankee Group, a unit of news and information company Reuters Group Plc (RTR.L) (NasdaqNM:RTRSY - news) in Boston.
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``It's a supply-constrained market, where the components suppliers have their choice of customers,'' he said.
Analysts said a steady stream of acquisitions of both publicly traded and privately held companies had narrowed the number of potential takeover targets.
``Consolidation has already been going on,'' said SG Cowen analyst Drew Peck. ``This is the culmination. Sure there will be more, but a lot of the smaller ones have been gobbled up.''
``However, there are lots of small, private companies,'' he added.
This year alone, mergers of public companies in the fiber-optic parts sector have topped at least $26 billion prior to this one. JDS Uniphase's takeover of E-TEK Dynamics Inc. in a stock transaction worth $18.7 billion last month was easily the biggest.
``JDS Uniphase and other companies have already done a number of big deals, including this SDL deal,'' said David Wong, a PaineWebber analyst.
``It doesn't seem to be clear that there are many more to come, at least in the near future.''
Canada's JDS Uniphase said on Monday it was buying SDL for $41 billion in stock, offering 3.8 JDS Uniphase shares for each SDL share. The deal values SDL's shares at $441 each, a 50 percent premium over Friday's closing price.
JDS Uniphase shares fell 15-1/16 to 101-1/8 in heavy trade. SDL, based in San Jose, Calif., rose 25-3/8 to 320-11/16.
The spate of mergers is being driven by exploding demand for fiber-optic parts from such telecommunications equipment makers as Lucent Technologies Inc. (NYSE:LU - news) and Canada's Nortel Networks Corp. (Toronto:NT.TO - news) (NYSE:NT - news)
The market for fiber-optic components is expected to rise to $23 billion by 2003 from $9 billion to $10 billion this year, according to John Lively, an analyst with RHK Inc., a telecommunications research firm in South San Francisco, Calif.
The rise is even sharper for such advanced parts as those used in dense wavelength division multiplexing, or DWDM. The technology boosts the capacity of optical fibers and are at the core of the Internet.
The DWDM parts market is expected to top $3 billion this year, up from $1.6 billion in 1999, Lively said.
Big telecommunications companies also could roil the takeover scene by spinning off their own fiber-optic units. Speculation has centered on Lucent.
A source familiar with the situation has told Reuters that Lucent was mulling a spin-off of its microelectronics and communications division. A Lucent spokesman was not immediately available for comment. |
