Merger CC part II:
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Q&A
BACKGROUND
1. WHAT ARE THE STRATEGIC REASONS BEHIND THE MERGER?
- Expanded amplifier strategy to address every application
including ultra long haul/submarine (Raman), long haul (EDFAs)
and short haul (amplets). Take amplifiers to the next level by
incorporating additional functionalities into amplifiers as they
become a more critical part of the network - for example, to
create loss-less switching and accelerate the evolution to the
all-optical network.
- Accelerate integrated module strategy with the combination of
electronics, different forms of modulation, enhanced active
technologies, broad passive product portfolio, and availability
of silicon platform for eventual integration on a chip.
- Best in class engineering team covering optics, electronics, and
materials. Our team will have the capacity to focus on every
important technology emerging in fiber optics while maintaining
ongoing product improvement.
- Although both companies are capacity constrained in today's
products, the bottlenecks are substantially different. We have
thus identified key areas where our two companies can help each
other either ramp capacity more quickly or shorten time to
market to increase our joint output of packaged 980 pump lasers,
lithium niobate modulators, and channel monitoring products. In
the long term, we expect the technical expertise that we have in
terms of new product development, automation, and process
engineering will bring next generation products to market
faster.
2. DESCRIBE THE PRODUCT COMPLEMENTS AND OVERLAPS BETWEEN THE TWO COMPANIES.
- There are many areas of complementary products and technologies
between the two companies particularly in the areas of
amplifiers, electronic drivers, and advanced laser packaging. As
many of you are aware, we do have some products in the same area
such as lithium niobate modulators and 980 nm pump chips.
However, each company has unique strengths even in these areas
of overlap which give the combined company not only one of the
broadest product lines in the industry but also one of the most
technically advanced.
3. DESCRIBE THE COMPANIES' POSITION IN 980 NM PUMPS?
- JDS Uniphase's position in packaged 980 pumps is small at this
time. On the 980 chip level, the two companies have excellent
products that compete with products from Corning/Lasertron,
Nortel, Alcatel, Pirelli (now Cisco), Lucent, ADC/Spectracom,
Agilent and several Japanese companies including Mitsubishi and
Furukawa.
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4. JDSU'S CURRENT 980 NM PUMP PACKAGING CAPACITY?
- JDSU is building its packaging operations at its new facility in
Plymouth, England. Operating capacity today is negligible.
5. CURRENT SUPPLY AGREEMENTS BETWEEN THE TWO COMPANIES?
- As announced publicly several weeks ago, JDSU has a supply
agreement with SDL for packaged 980 nm pumps that are utilized
in JDSU's amplifiers. The contract extends to December 2001 and
represents currently the majority of JDS Uniphase's pump supply.
At the same time, it is our desire and plan to continue to
source 980 pumps from our other suppliers as well.
6. JDSU'S EXISTING ARRAYED WAVEGUIDE PRODUCT PORTFOLIO?
- JDSU has development programs in arrayed waveguides. At our
E-TEK division, we have partnerships for packaging chips
supplied by manufacturers such as Bookham.
- SDL's recently acquired PIRI division is manufacturing and
shipping fully qualified AWG products in competition with other
established suppliers.
7. BROAD OUTLINE OF PRODUCT BASE FOR EACH COMPANY.
- SDL's product line has traditionally been strong in the active
space, particularly with pump lasers. The recent acquisition of
PIRI gives SDL a platform that represents an entree into
passives and SDL's recent acquisition of Veritech provides a
foundation in electronic components for optical transceivers and
modules. JDS Uniphase has built up a very broad product line
encompassing the majority of areas in a fiber optic network such
as transmitters, multiplexing/demultiplexing, amplification,
networking (switching, adding/dropping), and
detectors/receivers. The SDL product line complements that of
JDSU with some of the key technologies necessary to speed the
introduction of next generation products, including integrated
module offerings.
8. WILL SDL CONTINUE TO SUPPLY PRODUCTS TO JDSU COMPETITORS?
- SDL will honor its supply contracts with all of its customers
and plans to continue selling to all of its customers, most of
whom are also JDSU customers.
9. HOW MANY SITES DO SDLI AND JDS UNIPHASE HAVE WORLDWIDE? WHAT IS THE
SQUARE FOOTAGE OF EACH COMPANY'S OPERATIONS? HOW MANY EMPLOYEES DOES
EACH COMPANY HAVE?
- JDSU has over 30 locations worldwide with over 3.8 million
square feet and SDL has 9 locations with approximately 600,000
square feet. JDSU currently has approximately 17,000 employees
while SDL has 1,700.
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10. WHY DIDN'T SDL SELL TO CORNING AS WAS RUMORED? WHY JDSU?
- We believe that the SDL / JDS Uniphase combination creates a
company that, working together seamlessly, can serve the
telecommunications market more robustly than working
independently. We are thrilled about the opportunities this
combined company can capitalize upon going forward. We cannot
speak to the plans or intentions of other companies.
11. HOW WILL THE LITHIUM NIOBATE OPERATIONS IN CONNECTICUT AND THE UK BE
OPERATED?
- Based on the people, space and equipment in lithium niobate that
we now have between the two locations, we believe that we can
optimize this capacity to increase our combined output of
modulators in the short term. Our customers need more production
and this combination addresses that need immediately.
12. WHAT EFFECT DOES THIS MERGER HAVE ON THE COMBINED COMPANIES' 980 NM PUMP
BUSINESS?
- The over-riding issue is that packaged 980 nm pump lasers are in
short supply in the market place and as always we want to
increase our production to meet customer demand.
- More specifically, each of our 980 nm pump businesses is unique.
JDSU's chip business is better suited to non-grating stabilized
applications such as short haul uses and SDL's chip business is
better suited to very high power grating stabilized
applications.
- We believe the combined packaging capacity of both companies can
be expanded more rapidly over the next twelve months by
combining SDL's state of the art packaging technology with JDS
Uniphase's emerging packaging capability in Plymouth, England.
FINANCIAL AND TRANSACTION
13. WHY DID YOU PAY OVER $440 PER SHARE?
- We believe that SDL has exceptional growth prospects without
synergies and with obvious synergies we see incremental
opportunities
- Excellent product fit between the two companies - SDL has key
enabling technologies for optical networking - Premiums of this
nature are typical in technology deals
14. STRUCTURE OF THE DEAL?
- 3.8 to 1 exchange ratio. Tax free exchange, no collars, purchase
accounting. Anticipate close in December quarter subject to
approval of stockholders of both companies and regulatory
approval.
15. WHAT ROLE DID KEVIN KALKHOVEN PLAY IN THIS TRANSACTION?
- Kevin acts in an advisory role to Jozef on certain business
matters, however he was not involved in this transaction.
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16. THE E-TEK ACQUISITION CLOSED ONLY TEN DAYS AGO; WHY DIDN'T YOU TELL
INVESTORS ABOUT YOUR DISCUSSIONS PRIOR TO CLOSING THE E-TEK TRANSACTION?
- Our negotiation with SDL began after the E-TEK closing on June
30th and were initiated that day by SDL contacting us and
inviting us to participate in a competitive process for the
purchase of SDL. SDL was aware that we could not do anything
until E-TEK closed and therefore waited until that transaction
closed before contacting us.
17. WHEN DID DISCUSSIONS WITH SDL BEGIN?
- Management of the two companies know each other well and there
has been a long term familiarity and respect between the two
companies. JDS Uniphase was contacted by SDL on June 30th after
commencement of the E-TEK closing. During this contact it was
indicated that SDL was considering a sale of the company and was
in serious discussions with other parties.
- With the strategic significance of SDL to our business, we
launched an effort to strike an understanding and, after 10
hectic days, we signed the merger agreement last night.
18. YOU JUST CLOSED THE E-TEK ACQUISITION, AND IT SURELY IS NOT YET
INTEGRATED WITH JDS UNIPHASE; AREN'T YOU MOVING TOO FAST?
- Our industry is moving very, very quickly and a key to our
success is our ability to also move quickly to bring the right
products to market at the right time to enable and participate
in this growth. WE believe that agility and focus on rapid
expansion are key competencies in our company - and our
integration philosophy is very much focused on quick wins in
terms of value creation for our customers.
- Having said that, it is important to remember that we are
already underway with the E-TEK integration; and we do not
expect our merger with SDL to close until December; Integration
with SDL will not begin until after we close (except for
integration planning).
19. THE ARBITRAGEURS WILL NOT LIKE THIS MERGER BECAUSE OF ANTI-TRUST
UNCERTAINTIES; WHY ARE YOU DOING IT?
- While we recognize the important role the arbitrage community
plays, we are undertaking this merger for the benefit of our
customers and our stockholders; we have discussed regulatory
matters extensively with counsel for both companies and have
concluded that this merger will ultimately receive regulatory
approval.
20. IS THIS PHASE FOUR?
- No, it is not; we still plan to execute this critical step in
our strategy and will advise the investment community as we do.
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CUSTOMERS
21. EXPECTED CUSTOMER REACTION TO THE MERGER?
- The rationale behind the merger is about delivering more
products to customers sooner and we believe that they will
recognize that.
22. SDL'S CUSTOMER BREAKDOWN - HEAVILY WEIGHTED TOWARDS CORNING? COMBINED
COMPANY'S SALES TO CORNING?
- Both of us sell to all of the major telecommunications equipment
manufacturers. SDL's largest customers are Alcatel, JDS Uniphase
and Corning, while JDSU's two largest are Lucent and Nortel.
REGULATORY PROCESS
23. COULD YOU COMMENT ON THE REGULATORY PROCESS AND TIMING?
- The timing of regulatory clearance is up to the reviewing
agencies. We will be cooperating fully with regulatory agencies
from the outset, and we are optimistic that we will receive
clearance, although we cannot predict the timing of such
approval.
24. DO YOU EXPECT ANY REGULATORY ISSUES?
- We have entered into this transaction based on our belief that
the combination of these two companies will benefit the
customers of each company and the markets we serve based on a
number of factors. We will fully cooperate with the Department
of Justice in its review of this merger and are optimistic that
we will obtain the required approvals. We are very committed to
successful completion of this important merger and we will work
with the DOJ to obtain these approvals.
- Our industry is very competitive. In addition to direct
competitors to our products today, some of our largest customers
have extensive in-house component manufacturing and have
announced plans to expand operations. There are other
technologies that compete vigorously with those provided by our
companies and that our customers use. In addition, new companies
have been and are being formed at a high rate to compete in the
optical components industry.
25. WHEN DO YOU EXPECT TO CLOSE THE TRANSACTION?
- We are working to close the transaction as soon as we can, and
we expect to close it by the end of calendar year 2000.
26. WHAT IS THE PROCESS FOR FORMALIZING THE MERGER?
- We will need to file a registration statement with the SEC, and
obtain the approval of both companies' stockholders, as well as
regulatory approvals.
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Q&A
HUMAN RESOURCES
27. WILL ANY ESPP BENEFITS CHANGE?
- No, the ESPP for SDL employees will remain as is.
28. HOW WILL MY PAY BE AFFECTED BY THE MERGER?
- SDL has adopted a policy of paying salaries appropriate for its
respective locations. JDS Uniphase has a similar policy and we
therefore expect that our salaries will continue at their
current levels and will be administered locally.
29. WHAT HAPPENS TO MY SDL STOCK OPTIONS?
- The number of shares will be adjusted by multiplying the number
of shares of the SDL option times 3.8 and the exercise price
will be adjusted by dividing the exercise price of the SDL
option by 3.8.
- For example, if you currently have an option for 100 shares of
SDL stock at $10.00/share, your new option would be for 380
shares of JDS Uniphase at $2.63 per share.
30. WILL I HAVE STOCK OPTION OPPORTUNITIES IN THE FUTURE?
- SDL and JDS Uniphase both offer stock options and all employees
are reviewed annually for "merit" stock options based upon
performance.
31. WHAT WILL HAPPEN TO SDL'S STOCK?
- As a result of the merger agreement, SDL shares will be
exchanged, effective the date the merger is final, for shares of
JDS Uniphase. Each share of SDL will be converted into 3.8 JDS
Uniphase shares.
32. WILL MY COMPANY SERVICE DATE CHANGE WITH THE MERGER?
- No. Your current hire date will continue to be your service date
in the new company.
33. HOW WILL MY BENEFITS BE AFFECTED?
- The benefit programs in place will continue at least until the
merger is finalized. Our goal and expectation is that no one
will receive a lesser benefit package as a result of integration
plans.
34. WILL THERE BE AN EMPLOYEE BONUS PLAN?
- At least through the current calendar year, SDL's bonus
practices will continue. We will gradually align plans.
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35. WILL MY PERFORMANCE REVIEW STAY ON THE SAME SCHEDULE?
- Until the merger is completed nothing will change. Once the
merger is completed we will adopt the performance review
schedule at JDS Uniphase.
36. DO YOU EXPECT TO CONTINUE HIRING AT THE EXISTING JDS UNIPHASE AND SDL
LOCATIONS?
- JDS Uniphase and SDL are committed to their expansion plans in
all locations. As a combined company, we will continue to hire
to support the business. In addition, there will certainly be
career advancement opportunities at other company locations
around the world.
37. SO, WHAT HAPPENS NEXT?
- First, there will be no change in business or responsibilities
for the next few months until the transaction is completed. The
companies will continue to operate independently, even as they
plan for the close and eventual integration.
- Once the transaction closes, we plan to appoint transition teams
involving key employees from both JDS Uniphase and SDL to
propose common strategies and to drive enhanced value for our
customers.
38. HOW WILL SDL AND JDS UNIPHASE OPERATE AFTER THE CLOSE?
- For the vast majority of employees, SDL and JDS Uniphase will
continue to operate as they have in the past. However, we expect
to achieve significant synergies by integrating both our
products & technologies into our future product offerings, as
well as by coordinating product development and manufacturing
activities.
39. CAN I EXPECT ENHANCED CAREER OPPORTUNITIES BECAUSE OF THE MERGER?
- Challenging and rewarding careers in leading edge technology and
product development continue to be a strong source of
differentiation for us. We fully expect career development
opportunities will broaden for employees of JDS Uniphase and
SDL. You will be part of a global workforce accounting for more
than 19,000 employees operating in 11 countries.
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Q&A
ORGANIZATION
40. WHAT WILL BE THE NEW REPORTING STRUCTURE FOR SDL?
- There will be no change in reporting structure until the merger
is completed.
41. WHAT WILL BE YOUR ORGANIZATION STRUCTURE, AND WHAT WILL BE DON SCIFRES'
ROLE?
- Don will be co-chairman of JDSU and will continue to lead SDL
reporting directly to Jozef. Don will be a key driver in the
actives strategy of our combined company.
42. WHAT IS THE NAME OF THE NEW COMPANY?
- SDL will keep its name and operate as a wholly owned subsidiary
of JDS Uniphase.
43. HOW ARE YOU DEALING WITH INTEGRATION CHALLENGES ACROSS THE FAMILY OF
COMPANIES IN JDS UNIPHASE?
- We believe that a key to successful integration is to focus on
the underlying drivers for the specific acquisitions, which in
most cases involves producing more volume of today's products
and/or bringing next generation products to market faster
- We focus our transition teams on finding near term actions that
capture the high value opportunities
- We approach integration from the point of view of what is best
for the customer
- We are implementing these principles through integration of
management teams (keeping in mind that access to strong
management resources is an important consideration in our
acquisition strategy). We work to meld entrepreneurs and leaders
who have been successful at growing their individual businesses
into a strong integrated management team.
- We realign reporting relationships as appropriate to achieve the
greatest technology and/or product synergies
- A good example of this is the realignment of our Ottawa filter
activities with our filter center of excellence in Santa Rosa
- Where product lines overlap across merged companies, we ask
respective companies product line managers to work together to
create an integrated product line strategy.
- In summary, a focus on value creating actions for our customers
is the underpinning of our integration philosophy.
- Integration is not just about looking backward to rationalize,
it's about looking forward to identify and take advantage of
opportunities.
44. DO YOU INTEND TO CONTINUE TO SUPPORT THE ENTIRE SDL / JDS UNIPHASE
PRODUCT LINE? ANY PLANS TO PHASE OUT SOME PRODUCTS EVENTUALLY?
- Once the merger is completed, a team with representatives from
both companies will evaluate the product portfolio to identify
areas where
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new developments are required and seek opportunities to adjust
certain lines to continue to reflect customer demands.
45. WILL THERE BE SHUTDOWNS OR LAYOFFS AS A RESULT OF THE MERGER?
- The simple answer is "no." The companies each bring unique and
important capabilities to this merger that will enhance our
combined efficiencies and enable us to improve time-to-market.
The plan is to build on past success. Both companies are
capacity constrained and there are no plans to reduce headcount
as a result of this merger. As in the past, it is company
performance that will dictate our ongoing staffing plans. In
fact, our immediate plans are to continue to grow our business
to ensure that we are successful in attaining our business goals
and in serving our customers.
46. HOW WILL YOU INTEGRATE SALES & MARKETING, RESEARCH AND DEVELOPMENT,
HUMAN RESOURCES AND OTHER FUNCTIONAL DEPARTMENTS FOLLOWING CONSUMMATION
OF THE MERGER?
- Our integration philosophy will be one of cooperation and
coordination rather than combining or rationalizing operations.
- There will be designated teams with representatives from both
companies that will be responsible for overseeing the
coordination and alignment activities to achieve the synergies
of the merger.
- These teams will be guided by the following principles:
Customers
Customers
Customers
CUSTOMERS
47. WHO DO I CONTACT FOR PRODUCTS?
- You should continue to contact the people you have dealt with in
the past for the near term and, if there are any changes, you
will be contacted well in advance to ensure a smooth transition.
48. HOW WILL THE COMBINED COMPANY CONTINUE TO MEET BOTH THE OVERALL
INDUSTRY'S AND INDIVIDUAL CUSTOMER'S PRICE REDUCTION TARGETS?
- The purpose of the merger is to enable us to better meet the
increasing growth in demand for optical networking components
and modules, and to improve price-performance and
time-to-market.
- The combined scale and complementarity of our operations will
permit us to meet these objectives.
49. BOTH COMPANIES CURRENTLY HAVE SUPPLY RELATIONSHIPS, INCLUDING SUPPLY
CONTRACTS, WITH SYSTEM MANUFACTURERS. HOW WILL THESE BE IMPACTED?
- There will be no near term impact on existing relationships
other than to increase the overall supply. In the longer term,
the combined company will take advantage of complementary
strengths, greater scale and synergies to increase output and
shorten time to market.
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50. AS A NEW VENDOR OF OPTICAL NETWORKING PRODUCTS WE ARE CONCERNED WITH THE
CURRENT SUPPLY-LIMITATIONS FOR CERTAIN COMPONENTS LIKE 980 NM PUMP
LASERS. HOW WILL JDS UNIPHASE ENSURE THAT OUR NEEDS ARE ALSO MET?
- The merger will increase overall supply, benefiting all
customers of optical networking products. JDS Uniphase and SDL
have a long history of partnering with new entrants to develop
and produce innovative products. With the increased availability
of products following our merger, we should be even better
positioned to do so.
51. WILL THE TWO COMPANIES SHARE CUSTOMER INFORMATION?
- Until the merger transaction closes, we will not be sharing any
competitively sensitive information, including customer data.
52. CAN YOU GIVE ME AN EXAMPLE OF HOW THE COMBINED ENTITY WILL INCREASE
PRODUCTION CAPACITY?
- An example would be in our lithium niobate modulator business
where each company is constrained for different reasons.
Combining our people, space, and equipment will allow us to
maximize our capacity and increase modulator production. |
