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July 10, 2000
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JDS Uniphase Sells In Pre-Mkt At 101 1/2 On SDL Buy News
Dow Jones Newswires
NEW YORK -- JDS Uniphase Corp. (JDSU) shares were being sold at 101 1/2 in pre-market trading Monday, according to Instinet, after closing up 2 3/16, or 1.9%, at 116 3/16 Friday.
The company said Monday that it had agreed to a $41 billion merger with SDL Inc. (SDLI) under which every 3.8 shares of JDS Uniphase would be exchanged for one share of SDL. The companies said they see few antitrust challenges to the merger, which has a $1 billion break-up fee.
Shares of SDL were being bid up at 332, Instinet said, after closing up 10 7/8, or 3.8%, at 295 5/16 Friday.
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July 10, 2000
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CEOs Of SDL, JDS Uniphase Say Merger To Boost Capacity
Dow Jones Newswires
NEW YORK -- The acquisition of SDL Inc. (SDLI) would give JDS Uniphase Corp.'s (JDSU) the opportunity to increase its production capacity, the chief executives of the two companies agreed.
In a CNBC interview on Monday, SDL Chairman and Chief Executive Donald Scifres said the decision to sell the company was triggered by the need to produce at higher technological levels and provide customers with additional bandwidth.
Scifres said SDL was in discussions with other companies, but chose JDS' offer because of strong synergies and a "good price."
JDS Uniphase Co-Chairman and Chief Executive Jozef Straus said he's confident the merger would produce long-term benefits, and he sees very little product overlap.
"The market is moving fast," he said, "and customers demand new products every six to nine months."
As far as regulatory issues are concerned, Straus said he believes both companies will prove that the merger would benefit customers.
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July 10, 2000
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Capacity Demands Stimulates JDS Uniphase Bid For SDL
By JOHNATHAN BURNS
NEW YORK -- Hoping to avoid being pushed out of prominence by its own customers, fiber optic component maker JDS Uniphase Corp. (JDSU) made a $41 billion bid Monday for peer SDL Inc. (SDLI), a move that Wall Street analysts say will solidify its market-leading position.
If the deal is approved, the resulting company will be by far the leading fiber optics component-maker in the world, supplying products to systems makers such as Nortel Networks Corp. (NT), Lucent Technologies Inc. (LU) and Alcatel (ALA).
"JDSU really believes increasing capacity means survival," said George Hunt, analyst with Wachovia Securities. "They basically have to increase capacity (through the acquisition) to keep Nortel, Lucent and others from increasing their own component capabilities."
Product shortages have plagued various parts of the telecommunications world for the last year.
Which partially explains JDS Uniphase's acquisitive streak. Late last month, the company closed its $15 billion acquisition of fellow component maker E-Tek Dynamics.
By consolidating and stockpiling manufacturing capability in pump lasers and optical amplifiers, JDS Uniphase hopes to be able to meet surging demand for components as the world's telecommunications companies build their networks to carry fast data traffic.
"This deal would make JDSU even stronger," said Conrad Leifur, analyst with U.S. Bancorp Piper Jaffray. "There will be some manufacturing synergies."
He said JDS Uniphase was also persuaded to buy SDL because of the company's new products in amplifiers and planar wave guides. Such products, which involve sending and routing light over long distances, will be increasingly important as telecommunications companies build all-optical networks.
Currently, most telecommunications traffic moves in the electronic domain.
The biggest hurdle to the deal is getting U.S. Department of Justice approval.
"The chances of this deal going through are very high," Leifur said.
Hunt added that the support of systems makers like Lucent, Nortel and Alcatel would help move the deal along. When JDSU bought E-Tek, Alcatel supported the deal, saying it needed more components for its business.
Officials with Alcatel and Nortel declined to comment on the proposed merger.
Lucent spokesman John Skalko said the company will take a close look at the deal before deciding on its long-term implications.
Skalko did take the opportunity to note that by broadening its product suite, JDS Uniphase is beginning to more closely resemble Lucent's own optical component manufacturing business, which sells parts and modules to Lucent's systems business and its competitors.
And the popular sentiment on the street is that optical component companies now will begin cannibalizing each other in the race to bulk up against competitors and increase production.
The JDS Uniphase bid for SDL lifted many boats Monday, with fiber optic component-makers like New Focus Inc. (NUFO), Avanex Corp. (AVNX) and Bookham Technology PLC (BKHM) all showing upward momentum.
One of the few sector members trading down - aside from JDS Uniphase - was SDL's other would-be-suitor, Corning Inc. (GLW). The fact that the world leader in optical fiber was willing to make such an acquisition may have scared investors, but it also reveals the industry's near future: consolidation.
Paul Rogoshi, Corning's manager of marketing and communications, said the company had considered a deal with SDL, but the price was too high.
"The high valuation of the deal, we felt, didn't meet our idea of creating shareholder value," he said.
Corning buys some pump lasers from SDL, and Rogoshi said he hopes that relationship will continue regardless of the merger's future. The pump lasers are used in the optical amplifiers that Corning sells.
Rogoshi said the company will continue to grow internally but will also look for future opportunities to expand through partnerships or acquisitions.
JDS Uniphase and SDL officials stressed earlier in the day that there are as many as 14 companies making pump lasers similar to the ones the combined company would sell - the implication being that regulators should not object.
But not everybody is confident the deal will get federal blessing, or that it is a fair price for JDS Uniphase shareholders.
"On a fundamental level, this deal makes sense," said David Powers, analyst with Edward Jones. "But it is pricey. It will also get close scrutiny."
On the price side, Powers noted that SDL estimates fiscal year 2000 sales should be about $448 million. At Monday's quoted offering price of $41 billion, JDS Uniphase would be paying 91 times current estimated revenue.* [see note at bottom]
"Which is an extremely rich price," he said.
However, Chase H&Q analyst Jeffrey Lipton said he has crunched the numbers and believes the deal will add to earnings after the December close, just as the companies claim.
"At first look, it does look expensive," he said. "But if you look at the numbers, it is accretive."
JDS Uniphase has been a darling of Wall Street over the past 12 months. Since last July, the stock has risen 500% as investors have focused on the growing fiber-optic market.
That has helped swell the company's market capitalization to about $90 billion at the end of last week.
Wachovia Securities analyst Hunt expects the SDL deal will put pressure on JDS Uniphase's stock in the near term.
"I would expect it to trade off for a while," he said. "They use their stock as currency. I think people are less bothered by the price than the chances of regulatory approval. There is a lot of institutional support for this."
* My note: rev estimate does not include ramped manufacturing at PIRI or Veritech. I believe the price multiple will look considerably different after earnings are reported and certainly far different by the time the merger is complete.
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