JDS Uniphase to Acquire SDL for $41 Billion in Stock (Update2)
7/10/00 1:21:00 AM
Source: Bloomberg News
San Jose, California, July 10 (Bloomberg) -- JDS Uniphase Corp., the No. 1 maker of fiber-optic components, has agreed to buy SDL Inc. for $41 billion in the largest technology acquisition ever, the companies said.
Shareholders of SDL will receive 3.8 JDS shares for each SDL share, or $441.51, almost 50 percent more than the Friday closing price for SDL shares.
SDL, which counts JDS as one of its largest customers, will give its buyer advanced technology and know-how to build the next generation of parts for communications networks. JDS Uniphase will be able to increase its capacity to fill a backlog of orders for equipment that beams information on hair-thin strands of glass.
''There's a need for suppliers in this industry to scale up quickly in size to meet demand,'' said Prudential Securities Inc. analyst John Butler, who rates JDS a ''strong buy.''
''The best way to do that is by acquisition.''
JDS has transformed itself from a tiny maker of gas lasers into a powerhouse in fiber optics by acquiring 17 companies since 1995, including four in the past six months.
The SDL acquisition would be its biggest purchase yet, dwarfing even the acquisition of E-Tek Dynamics Inc. for $20.4 billion last month.
JDS and SDL, both based in San Jose, California, sell their components to companies that build systems to run fiber-optic networks. They also share a number of major customers, including Lucent Technologies Inc., Fujitsu Ltd., Cisco Systems Inc. and Corning.
The purchase would prove that Chief Executive Jozef Straus is determined to continue the aggressive style of his predecessor Kevin Kalkhoven.
Kalkhoven, who retired in May, triggered a tidal wave of takeovers in fiber-optic components by snapping up JDS Fitel Inc. for $7.18 billion a year ago.
Few Targets Available
Since then SDL, Corning Inc., Lucent, Nortel Networks Corp., ADC Telecommunications Inc. and Alcatel SA have reduced the number of targets available to a handful.
''Of the players that are left, the combination of SDL with JDS Uniphase is the most natural,'' Prudential's Butler said.
Straus vowed when Kalkhoven retired that JDS would operate much the same under his stewardship and continue its rapid pace of acquisitions.
JDS's completion of the E-Tek acquisition on June 28 triggered the negotiations, said SDL Chairman and Chief Executive Donald Scifres, who initiated the talks.
''Joe, I see you just closed on E-Tek and it's time we should get together to talk,'' the SDL chairman said he told Straus.
After negotiations got under way, Scifres said, he broke off negotiations with another potential acquirer that had started earlier. He declined to identify the company.
Speculation that Corning was looking at the company prompted shares to rise in June. Analysts have suggested for months that Corning, which has completed five purchases this year in a drive to compete on equal footing with industry leaders JDS and Lucent, could buy SDL.
Scifres will be co-chairman of JDS and be actively involved in running the company after the SDL acquisition closes, which is expected before the end of the year, the companies said. No job cuts are expected, Scifres said.
The SDL acquisition will help JDS compete against Corning, said Anthony Muller, JDS' chief financial officer.
Although JDS is the largest manufacturer of fiber-optic components, it lags Corning in sales of optic amplifiers, which boost light signals beamed through thousands of miles of ultra- pure glass fibers. JDS and SDL are competitors in the optic amplifier market, though SDL has a more advanced product.
SDL also is a leader in the nascent market for Raman amplifiers, new products that extend the reach of fiber networks even further. SDL acquired JDS Uniphase rival Photonic Integration Research Inc. for $2.2 billion last month to gain products used to boost the capacity of fiber networks.
The previous record for a technology acquisition was Lucent's purchase of Ascend Communications Inc. for $25.2 billion in June 1999.
SDL shares rose 10 7/8 to close at 295 5/16 on Friday. JDS shares rose 2 3/16 to 116 3/16.
SDL expects 2000 sales to reach $448 million from $187 million last year. It had 1999 profit of $29.9 million.
JDS Uniphase's sales rose 53 percent to $282.8 million in the fiscal year ending June 30, 1999. It reported a loss of $171.1 million that year.
Antitrust Scrutiny
Muller said he expects the U.S. Justice Department's antitrust division to give the acquisition close scrutiny, as it did the E-Tek purchase, though ultimately approve it. JDS Uniphase already has discussed the purchase with some of its biggest customers, who potentially could persuade the Justice Department to block the acquisition if they opposed it, Muller said.
''We believe this acquisition is good for customers,'' he said. ''I'm not aware of any serious objections.''
Muller said JDS Uniphase has no plans for divestitures to win approval. SDL will give JDS Uniphase a dominant share of the market for the most sophisticated pump lasers, analysts said.
In granting approval for E-Tek, the Justice Department required JDS Uniphase to give up its right of first refusal on supplies of a component used by both companies. Muller said it's too early to say what the Justice Department will require to approve SDL, if anything.
''We will cooperate in all respects with the DOJ,'' he said.
Thomas Weisel Partners LLC advised SDL. The investment banking arm of CIBC and Banc of America Securities advised JDS Uniphase.
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