We made the NYTimes and now the Washington Post, though no mention in the SJ Mercury, at least not yet:
washingtonpost.com
Fiber-Optics Firm To Swallow Rival
By Peter S. Goodman
Washington Post Staff Writer
Tuesday, July 11, 2000; Page E01
Silicon Valley's newest fiber-optics Wunderkind announced plans yesterday to buy a lesser-known rival for about $41 billion in stock, providing the latest sign that the drive to propel greater flows of data through the Internet continues to escalate.
The buyer, JDS Uniphase Corp., and the company it seeks to acquire, SDL Inc., each make equipment that increases the speed and carrying capacity of fiber-optic cables, the micro-thin strands of glass that are the primary arteries for telephone and Internet traffic. Possessing that sort of technological prowess in this era of exponential Internet growth is not unlike boasting mining skills during a gold rush.
The two San Jose-based companies now compete in certain markets, and analysts expect the Justice Department to scrutinize the deal intently. But speculation on whether the deal would pass muster took a back seat yesterday to talk about sheer size of the proposed purchase.
Only three years ago, the transaction would have amounted to the largest corporate merger in history, valued at more than what WorldCom Inc. agreed to pay for MCI Communications Corp.
JDS is offering billions for a company that in the first three months of the year sold only $72 million worth of products. Together, the two merger partners lost about $140 million in the most recent quarter. Moreover, SDL shareholders are receiving roughly a 50 percent premium.
The market frowned on the equation, knocking JDS down by $15.06 1/4--nearly 13 percent--to $101.12 1/2. SDL gained nearly 9 percent, adding $25.37 1/2 to close at $320.68 3/4.
But many analysts said JDS is merely continuing a recent tradition, using its highflying stock--itself the product of the once-unthinkable valuations--as currency to capture a start-up with desirable technology. Underlying the trend is the telecommunications industry's unyielding enthusiasm for the prospects of the Internet.
Last year, companies that make fiber optics parts sold $6.7 billion worth of products, the research firm RHK estimates. By 2003, that number is expected to swell to $23.1 billion.
"The demand for fiber capacity is probably unquenchable in the near future," said Ty Cottrill, an analyst at the Strategis Group in Washington. "They're building and installing equipment as fast as they can make it."
In the modern-day architecture of the global telecommunications network, voice calls and computer data are first turned into pulses of light before they rocket over fiber-optic cables at the speed of light. Both SDL and JDS make chips that govern lasers used to boost the speed of those light pulses along the way. Together, the two companies control as much as 80 percent of the market, according to Conrad W. Leifur, an analyst with U.S. Bancorp Piper Jaffray in Minneapolis--a figure the companies dispute.
The Justice Department, which is likely to review the deal, is increasingly focused on preventing mergers from yielding dominance over new technologies that could eventually spawn control over new markets. In agreeing to hand SDL shareholders an enormous premium, JDS is focused on securing a hold in future markets by harnessing SDL's creativity, analysts said.
"The government will look at the effect on innovation-competition," said Kevin Arquit, a former director of the Federal Trade Commission's Bureau of Competition in Washington. "That's really a hallmark of this administration."
There are "not a lot of players in the fiber-optic equipment market," added an aide to the Senate antitrust subcommittee, "so consolidation does concern us."
But the companies dismissed talk they might have a hard time winning over regulators. They portrayed their fusion as an advance for the public interest because it will speed the deployment of new products to a market rushing to roll out new Internet services, while relieving frustrated consumers from what is sometimes known as the World Wide Wait.
"The fundamental optical components and modules are the most important building blocks of modern telecommunications systems," JDS Uniphase Chief Financial Officer Anthony R. Muller said in an interview. "These are very difficult products to build. . . . Ultimately, the regulators will come to the conclusion that [the deal] is in the best interests of our customers."
New entrants to the market and their ideas will offset any loss of competition, Muller added. "Technology changes markets very, very quickly," he said. "Yesterday's dominant company in any industry can become a historical artifact very quickly."
A late-vintage Wall Street darling that has amassed growth through blockbuster mergers, JDS Uniphase knows how to navigate the regulatory hurdles. Last month, the company announced a deal with the Justice Department that gained clearance for its last major capture, E-Tek Dynamics Inc.
E-Tek owned the rights to buy much of the supply of "thin-film filters," which break light pulses into individual colors, each used as a separate channel to carry hundreds of thousands of telephone calls at once. To get the deal through, E-Tek agreed to give up those rights. |
