01/16 20:08 JDS Is in Talks to Sell Plant to Nortel, People Say
(Update1)
By Erik Schatzker
San Jose, California, Jan. 16 (Bloomberg) -- JDS Uniphase Corp., the biggest
maker of fiber-optic components, is in talks to sell a Swiss factory to Nortel
Networks Corp. for about $3 billion to gain U.S. antitrust clearance for its
acquisition of rival SDL Inc., people familiar with the negotiations said.
While the companies have outlined a sale agreement, some issues are
unresolved, the people said. Reconciling those differences and getting a
transaction approved by the U.S. Justice Department may delay the purchase
until mid-February, they said.
JDS Uniphase is selling the plant in Zurich, Switzerland, to satisfy U.S.
regulators, who insist on the divestiture to preserve competition in the market for
telecommunications lasers, the people said. Nortel wants to acquire the factory
to strengthen a components unit in which it plans to sell shares, they said.
``How to deal with Zurich has always been the sticking point in the merger,'' said
portfolio manager Giri Devulapally of T. Rowe Price Associates, a holder of both
JDS Uniphase and SDL shares.
The plant makes 980-nanometer pump lasers, a type of device that amplifies
signals in fiber networks. JDS bought it from International Business Machines
Corp. for $45 million in 1997. The company then constructed a new building and
purchased new manufacturing gear, increasing sales and boosting the value.
Transaction Value
JDS in July agreed to acquire SDL in a stock transaction now valued at $16.9
billion, down from an initial $41 billion. It postponed a shareholder vote to approve
the purchase until Jan. 26 and probably will have to reschedule it again, one
person said.
Nortel spokesman Andy Lark declined to comment on the negotiations. JDS
officials couldn't be reached for comment. Justice Department spokeswoman
Jennifer Rose also declined to comment.
The outlined agreement calls for Nortel to pay mostly shares to acquire the
Zurich plant, the people said. Nortel, the biggest maker of fiber-optic equipment,
also is prepared to increase spending on JDS products as part of the agreement,
they said.
``Even though selling to Nortel means helping a competitor, it also strengthens a
relationship with a very important customer,'' Devulapally said.
Nortel is one of JDS Uniphase's top three customers.
While the companies negotiate, the Justice Department is requesting documents
and scrutinizing the proposed terms for antitrust concerns, the people said.
Nortel already is among the biggest makers of fiber-optic components and would
increase its share of that market by purchasing the Swiss factory.
To ensure that regulators approve the divestiture, the companies are including
language in the agreement that explains how the factory will stay competitive
with Nortel as the owner, the people said.
Market Share
Without a divestiture, San Jose, California-based JDS would double its share of
the market for 980-nanometer pump lasers to about 80 percent. That's a level
that antitrust regulators find objectionable, the people said.
JDS Uniphase wants to keep the factories in San Jose and Santa Clara,
California, where SDL makes a powerful version of the lasers that some
customers prefer, the people said. It had planned to complete the acquisition by
the end of 2000, though negotiations with antitrust regulators and bidders on the
plant up for sale dragged on longer than expected, one person said.
If the Justice Department does approve the Zurich plant sale, JDS probably will
get clearance to acquire SDL shortly afterward, the person said.
Stock Sale
Nortel plans to sell about 15 percent of its components business in an initial
public offering this year. To become the favored bidder on the Zurich factory, the
Brampton, Ontario-based company beat out competing proposals from Furukawa
Electric Co. and Corning Inc., the people said.
Furukawa, which owns about 11 percent of JDS shares, never held talks to
acquire the plant, spokesman Osamu Suzuki said.
``It would have been an ideal situation if Furukawa were paying with the JDS
stock they own,'' Devulapally said.
Corning officials couldn't be reached immediately for comment.
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