JDS Snaps Up SDL in $41 Billion Deal
By Sarah Edmonds Jul 10 12:44pm ET
TORONTO (Reuters) - Acquisitive JDS Uniphase Corp., trying to meet booming global demand for fiber-optic equipment, said Monday it was snapping up SDL Inc. for $41 billion in stock, beating out rivals to forge the largest takeover of a technology equipment maker on record.
In a purchase that gives capacity-strapped JDS a tighter grip on the booming market for high-speed Internet components, the Canada-based company is offering 3.8 shares for each SDL share, valuing SDL's shares at around $441 each. That is a 50 percent premium over Friday's close.
Following completion of the deal, San Jose, California-based SDL will be a wholly owned subsidiary of JDS, which is based in Ottawa and in San Jose.
If the deal is not completed, SDL will pay JDS a break-up fee of $1 billion, JDS executives told a conference call.
``This combination brings together world-class technical and manufacturing teams that promise to deliver best-in-class products at increased volumes for today's systems while developing solutions for tomorrow,'' said SDL chief executive Don Scifres.
``We also expect to enable the migration from today's hybrid integration and module level products to tomorrow's truly integrated system on a chip,'' he added.
SDL makes optical equipment for fiber-optic networks to carry exploding volumes of Internet traffic. The phenomenal growth of this market has already created market stars like Cisco Systems and Nortel Networks Corp.
Said JDS CEO Jozef Straus: ``By now we all know that the Internet is taking over the world and what that means about the need for bandwidth. Optical is clearly the only solution and our customers are building tomorrow's systems, need higher levels of integration and more complex products every day.''
The union is expected to close by December, pending shareholder and regulatory okays, including key U.S. Justice Department approval, JDS said. The Justice Department asked for further details when JDS bid in January for another company in the industry, E-Tek Dynamics Inc., but the deal ultimately won approval.
``I believe that this is a transaction that will serve customers well and we believe that the regulatory authorities will come to that conclusion, although we can't predict the timing in a regulatory review situation,'' said Anthony Muller, JDS's chief financial officer in a telephone interview.
Although Muller said the deal with add to earnings per share from the outset, shares in JDS tumbled sharply on the news, falling more than 16 percent at one point in Toronto before recovering to trade down C$17.95, or 10 percent lower, at C$154.65 in turnover of 1.2 million shares.
On Nasdaq, JDS shed 13-29/32 to 102-9/32, a drop of nearly 12 percent. SDL was Nasdaq's top gainer, up 32-8/16 at 327-13/32.
``It's such a hugely dilutive and expensive deal, it's just coming off one end and up at the other,'' said Duncan Stewart, a fund manager with Tera Capital in Toronto.
He said JDS's late arrival to the bidding for SDL boosted the price JDS had to offer.
JDS and SDL stitched together the deal in just 10 days after SDL approached JDS to say it was being wooed by potential buyers, Muller told Reuters.
JDS's Straus and SDL's Scifres have known one another for years -- Straus rejected a job offer from Scifres in 1979 -- and SDL was a JDS supplier, so the firms were well-acquainted when Scifres approached Straus about a possible union.
``Shortly after we announced the closing of the E-Tek deal on June 30, Don called up Jozef and said 'We are in discussions with potential acquirers. We have a very high regard for JDS Uniphase. Would you be interested in considering the merger of our companies?','' Muller said.
``We moved very quickly and we did a lot of work in a very short period of time.''
Corning Inc. spokesman Paul Rogoski confirmed that Corning had looked at SDL but would not say who walked away. He said the ``valuation was pretty high'' for SDL.
Muller said JDS executives conducted swift due diligence, working around the clock while holed up in a hotel room near San Francisco airport.
When the deal was struck, SDL shares were up more than 1,000 percent on the year, making it the best performer among name-brand semiconductor stocks.
The group is a prime target partly because of its coveted optic amplifiers, a key technology that sends light signals over cables. SDL has a more advanced product than JDS, which extend the reach of fiber-optic networks even further.
JDS is one of the biggest of a tier of so-called ''merchants'' or independent component manufacturers that serve and compete against companies such as U.S.-based Lucent Technologies, Canada's Nortel and France's Alcatel, which in turn supply telecoms companies.
With its customers desperate for a reliable source of parts and, increasingly, sub-assemblies at ever cheaper prices, JDS has become a sector consolidator -- a process common in the car industry -- with surging shares.
``This is becoming a mature industry,'' said Mark Davies-Jones, technology analyst at Schroder Salomon Smith Barney in London.
``Companies are increasingly trying to offer a complete, integrated solution. It (the price) is unsurprising considering market circumstances.'' |
