I picked up a NYTimes to read on the way home and guess what was on the front page of the business section?
Yep, our favorite duo:
<<<
July 17, 2000
NEWS ANALYSIS
JDS Who? Fast Growth, Farflung Fold and Worries
By LAURA M. HOLSON
hen JDS Uniphase announced last week that it was buying a competitor, SDL, for an astounding $41 billion in stock, many on Wall Street wondered, who are these guys?
Sure, JDS was one of the hottest companies of 1999, its stock price soaring more than 900 percent. But its business -- making components for fiber optic networks -- was hardly the most glamorous angle of the telecommunications industry.
The Associated Press
Jozef Straus, left, chief executive of JDS Uniphase, with Donald Scifres, chief executive of SDL, before the purchase of SDL was announced last Monday. The $41 billion deal represents JDS's 10th acquisition in a year.
--------------------------------------------------------------------------------
It has been only a year since JDS Fitel, a Canadian telecommunications equipment maker, merged with the Silicon Valley company Uniphase to become JDS Uniphase. At that point, the company had a market capitalization of only $14 billion. But in the last year, JDS has been on an acquisition tear, agreeing to buy 10 companies -- including SDL -- for more than $63 billion in stock or cash.
Suddenly, JDS Uniphase is a behemoth with a stock market value of $100 billion, raising the eyebrows of not only investors but antitrust regulators as well.
Why? JDS Uniphase makes fiber optic equipment like receivers and amplifiers that generate and direct pulses of light and distribute bits of information at eye-blink speed over optical networks. Demand for such components is sizzling: customers like Nortel Networks and Lucent Technologies need those pieces to build the Internet superhighway.
As such, JDS's acquisition strategy has been to buy component suppliers that can fill the gaps in its product line, providing it a more complete catalog of fittings and fixtures to offer its telecommunications company customers.
This is a time-honored strategy in technology circles, similar to the way Texas Instruments acquires hardware specialists or Computer Associates buys up software boutiques. Yet, although the strategy makes sense in a hot market, it can also be risky.
Along with the products gained through the nine acquisitions finalized, about half of JDS's 17,000 employees are also new to the fold. Operations are spread far and wide -- from China to Canada, and scattered on the East and West Coasts of the United States.
And acquiring and making products to meet demand in the booming fiber optics network market is more than a full-time job. So, really, who has time to pay attention to the minutiae of integrating all those new members of the JDS Uniphase family?
Possibly no one. And that is what worries some money managers, analysts and industry consultants who wonder if JDS Uniphase's reach is fast exceeding its grasp.
"If you've gotten used to a certain size of deal, you have a process in place," said Mark Sirower, a merger adviser at the Boston Consulting Group. "When you go to multibillion-dollar deals, it's a much bigger management challenge."
Investors punished JDS's stock price last Monday, knocking it down 13 percent upon the announcement of its merger with SDL. Though the shares had recovered most of the lost ground by Friday, analysts are concerned that the SDL deal comes too fast on the heels of the $18 billion agreement in January to acquire E-Tek Dynamics, a merger completed on June 30 after months of scrutiny by the Department of Justice. Only now is E-Tek beginning to be combined with JDS.
Leery that the fiber optics industry may be consolidating too quickly, the Justice Department demanded concessions of JDS, the industry leader for several products, before approving the acquisition of E-Tek, one of the largest makers and buyers of optical thin-film filters, which divide beams of light so they can transmit more information. E-Tek had deals with other makers to be the exclusive buyer of their filters, and the Justice Department forced E-Tek to give up those deals before allowing the JDS merger to proceed.
The Justice Department could require various concessions in the SDL acquisition, too.
"We think the regulatory approval process will be somewhat involved and could add volatility to the two stocks over the next six months," Tom Astle, Merrill Lynch's senior optics analyst, wrote in an assessment of the SDL deal last week.
Charles J. Abbe, the president of JDS Uniphase, who himself came aboard only in February after JDS bought Optical Coding Laboratory Inc., acknowledges that the expanding company is still very much a work in progress. But rather than a liability, he sees the company's structure as a new-economy paradigm. "We are forging a geographically diverse model," he said. "We are a virtual management team."
With each acquisition, Mr. Abbe said, the first group to be integrated is the sales force, which reports to him. But he acknowledged that senior managers of most departments could meet only by videoconferencing because they were too farflung to gather in person. Rather than being concentrated at JDS's headquarters in San Jose, Calif., or Ottawa, managers who head business units are situated at whichever acquired company has the relevant area of expertise.
Take JDS Uniphase's operations in optical thin-film coating. Because Mr. Abbe's old company, called OCLI, has a particular expertise in that specialty, he said, the operations of other acquired companies in that sector report to a manager in Santa Rosa, Calif., OCLI's former base.
Similarly, executives at two other companies acquired last year -- AFC Technologies, formerly of Hull, Quebec, and Oprel Technologies, whose previous address was Nepean, Ontario -- report to executives in Freehold, N.J.
Confusing? Only to the uninitiated, Mr. Abbe said. "Whatever we do is tested against the idea of serving the customer effectively," he added. Because demand for networking products is booming, the acquired companies have a common goal of getting product out the door fast. That, he said, is the tie that binds; anything more would seem too constraining.
"The way we bring them into the fold is that the strategies are very clear and the charter is understood," he said. "Beyond that, we aren't going to bring them into the fold."
--------------------------------------------------------------------------------
Related Article
Web Hardware Maker Buys Digital `Plumber' for $41 Billion
(July 11, 2000)
--------------------------------------------------------------------------------
Mr. Astle, the Merrill analyst, said that despite the risks, the purchase of the San Jose-based SDL would be positive for both companies if they delivered as promised. He points to the primordial merger of JDS Fitel and Uniphase as the template for what the management team can do well. Jozef Straus, now chief executive of JDS Uniphase, was chief executive at JDS Fitel.
For one thing, executives remained focused on what customers wanted, he said, freed from the corporate jockeying that distracts even the best managers during a merger. And the company continued to foster its own in-house research and development instead of relying solely on the companies they bought.
But as with any investment, past performance is no guarantee of future results. "Just because you put a bunch of products together doesn't mean they will be better off," said Mr. Sirower of Boston Consulting. In other words, a merger can make sense on paper but not succeed unless it is executed well. "It's separate to the economies of why you are doing a deal," he said.
Mr. Straus said JDS Uniphase had an advantage in these fast-changing times: The fiber optics component field is such a close community that the senior management teams at many of the companies JDS has acquired have known one another for some time. JDS Fitel, for instance, once had a joint venture with OCLI.
Mr. Straus said he had known Donald Scifres, chief executive of SDL, for nearly a decade. "We share the same passion," he said. "That is the essence of this merger."
>>>>> |
