From the New York Times:
July 10, 2000
JDS Uniphase to Buy SDL for $41 Billion in Largest Tech Merger
By TIM ARANGO
NYTimes.com/TheStreet.com, 4:19 p.m.
JDS Uniphase , the world's largest maker of fiber optics components, will buy SDL in a stock deal valued at close to $41 billion, the companies said Monday.
Under the terms of the deal, the largest technology acquisition ever outside of telephony, each SDL share will be exchanged for 3.8 shares of JDS Uniphase stock. Based on Friday's closing prices, the arrangement represents a 49.5 percent premium for SDL shareholders. JDS closed last week at 116 3/16, up 2 3/36, while SDL was up 10 7/8 at 295 5/16.
Predictably, JDS Uniphase stock plummeted, while SDL was up. JDS Uniphase closed down 15 1/16, or 13 percent, at 101 1/8. SDL finished up 25 3/8, or 9 percent, at 320 11/16 after reaching a 52-week high of 330 15/16.
"From SDL's standpoint, it's wonderful for shareholders," said Terry O'Brien, an analyst at Branch Cabell & Co. in Richmond, Va. who covers JDS Uniphase.
The merger will speed up the development of high-capacity, flexible optical networks that will allow quicker transmission of data over the Internet, the companies said in statement. The deal gives JDS Uniphase access to SDL's technology, particularly its raman amplifiers, which allow laser signals to travel a greater distance over fiber optic networks. JDS Uniphase has been a big buyer of the devices.
In addition, the deal will increase JDS Uniphase's manufacturing capacity, which lately has not been able to keep up with demand, O'Brien said.
"I think it is particularly good for SDL, because JDS has been growing at such a fast pace that it has dwarfed SDL, which has no financial capacity to grow fast enough to compete with JDS," he said, noting that as of Friday's closing prices, the market valued SDL at $22.5 billion, while JDS Uniphase's market capitalization was $86.8 billion.
JDS has acquired 17 companies since 1995, including, most recently, E-Tek Dynamics, which it bought for $20.4 billion last month.
However, JDS may be growing too big, too fast. "In my mind, it certainly raises antitrust concerns because of the size of the deal," O'Brien said. O'Brien has a long-term buy on JDS Uniphase stock, and has a 12-month price target of 140. His firm has not performed underwriting for the company.
Another analyst, James Waggoner, the director of research at Sands Brothers & Co., had similar concerns. "They are going to look at it very closely," he said of regulators, although eventually he believes the Department of Justice will approve the deal. Waggoner has a strong buy on JDS Uniphase and a buy rating on SDL. His firm, too, has not performed underwriting for either company.
In a conference call, company officials assured analysts that the deal will pass regulatory muster. And since JDS recently worked with the Justice Department to get its E-Tek deal through, analysts are confident company management can be successful at convincing regulators, Waggoner said.
Analysts were slightly surprised by the price tag, but noted that the deal -- as opposed to R&D deals that take years to pay dividends -- is expected to pay off immediately for JDS Uniphase's bottom line. However, the high price was the result of a bidding war for the company, which included Corning , Waggoner said. "Clearly, the company held an auction," he said.
In the analyst conference call Monday, the company indicated that quarterly earnings for JDS Uniphase, E-Tek and SDL will all beat Wall Street analysts' estimates.
The deal, which is expected to close in December, is the largest U.S. high-tech acquisition, and among the top 20 largest M&A deals of all time, according to Thomson Financial Securities Data.
San Jose, Calif.-based SDL, which counted JDS Uniphase as one of its largest customers, has about 1,700 employees and had sales of $72 million in the first quarter, ended March 31. JDS Uniphase, based in Nepean, Ontario, has more than 17,000 employees and reported sales of $395 million in its fiscal third quarter, ended March 31.
JDS Uniphase was advised by Banc of America Securities and CIBC World Markets. SDL was advised by Thomas Weisel Partners.
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July 10, 2000
JDS Uniphase's SDL Buy Seen Getting Close Scrutiny
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REUTERS INDEX | INTERNATIONAL | BUSINESS | TECHNOLOGY
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Filed at 5:18 p.m. ET
By Reuters
WASHINGTON (Reuters) - Fiber optics giant JDS Uniphase Corp.'s (JDU.TO) (JDSU.O) proposed $41 billion acquisition of rival SDL Inc. (SDLI.O) will likely face tough scrutiny by U.S. antitrust regulators on issues of competition and innovation, analysts and lawyers said on Monday.
Canada-based JDS Uniphase, in its quest to meet rising demand and increase capacity, plans to gobble up competitor San Jose, Calif.-based SDL, which has developed laser equipment that would allow the transmission of multiple light signals over a single fiber.
``It is going to get unbelievable scrutiny. It would create an absolutely dominant player,'' said Drew Peck, analyst at Boston-based SG Cowen. ``SDL is no. 2 overall (in providing components for the manufacture of fiber optic equipment) after JDS.''
Regulators will likely examine whether the companies overlap in areas of production, competition in the market, how big a market share the new company will have and if the combination will hurt future innovation, according to antitrust lawyers and experts.
One area of concern may be an overlap in the 980 nanometer laser pump chip market by the two companies, according to a daily note issued by Credit Suisse First Boston.
``The agencies are going to have to get into the details of what product lines overlap, if any, how concentrated are those industries where there is an overlap, and the usual analysis,'' said Bert Foer, president of the American Antitrust Institute in Washington.
Less than three weeks ago the U.S. Justice Department, which will likely examine this acquisition, set tough conditions in approving JDS Uniphase's $18.7 billion purchase of E-Tek Dynamics Co.
E-Tek and JDS Uniphase would have controlled about 80 percent of the world's output of thin-film filters, so antitrust regulators demanded the two companies cancel certain contracts for the filters which allow more information to be packed into the optic fibers.
SCRUTINY COULD INCLUDE INNOVATION
Regulators also may be drawn to determining whether the combination of JDS Uniphase and SDL would stifle innovation, according to one antitrust lawyer.
``They will try to answer the questions of whether the merger would lead to less innovation and deprive customers of new products that would otherwise be available,'' said Don Farmer, a lawyer at Reed, Smith, Shaw & McClay LLP in Washington.
Still, JDS Uniphase executives were optimistic the company would be able to close the deal by December, and that antitrust regulators should have relatively few worries about market concentration.
``There's really very little overlap,'' said Jozef Straus, co-chairman and chief executive of JDS Uniphase. ``We feel that, with our technological synergies, we'll bring products closer to our customers.''
However, the stocks of the two companies diverged after the merger announcement with JDS Uniphase dropping more than 10 percent -- in part because of concerns about regulatory approval -- and SDL soaring almost 10 percent.
JDS Uniphase shares ended down 15-1/16 at 101-1/8 while SDL rose 25-3/8 to 320-11/16 on Nasdaq.
``We think ultimately that this merger will receive clearance,'' Anthony Muller, JDS Uniphase chief financial officer, told Reuters.
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