I've clipped some paragraphs from the JDSU-SDLI merger prospectus. Of note is the fact there were two suitors besides JDSU and the more serious, referred to as the "Second Other Offer," agreed to pay a 50% premium to SDL's stock price (to meet JDSU's offer), pending board approval. Straus had put a deadline on his offer and that was the death knell for the Second Other Offer's offer:
freeedgar.com
In-process research and development, which is currently estimated at $184.6 million, will be expensed in the quarter when the merger closes. . . .
If goodwill and other intangible assets were amortized in equal quarterly amounts over a five year period following completion of the merger and the deferred compensation was amortized over the remaining vesting period of the options, the accounting charge attributable to these items would be approximately $2.1 million per quarter and $8.4 billion per year in the year following the closing date of the merger. As a result, purchase accounting treatment of the merger will increase the net loss for JDS Uniphase in the foreseeable future which could have a material and adverse effect on the market value of JDS Uniphase common stock following completion of the merger. . . .
JDS Uniphase estimates that it will incur direct transaction costs of approximately $410 million associated with the merger, which will be included as a part of the total purchase cost for accounting purposes. In addition, SDL estimates that it will incur direct transaction costs of approximately $40 million which will be expensed in the quarter that the merger closes. JDS Uniphase and SDL believe the combined entity may incur charges to operations, which are not currently reasonably estimable, in the quarter in which the merger is completed or the following quarters, to reflect costs associated with integrating the two companies. There can be no assurance that the combined company will not incur additional material charges in subsequent quarters to reflect additional costs associated with the merger. . . .
[Why has the ETEK acquisition been so costly?]
JDS Uniphase often incurs substantial costs related to its combinations, mergers and acquisitions. For example, JDS Uniphase has incurred direct costs associated with the combination of Uniphase and JDS FITEL of approximately $12 million, incurred approximately $8 million associated with the acquisition of OCLI and incurred approximately $92 million associated with the acquisition of E-TEK. JDS Uniphase may incur additional material charges in subsequent quarters to reflect additional costs associated with these and other combinations and acquisitions which will be expensed as incurred. . . .
For example, JDS Uniphase's existing Uniphase Netherlands facility has not achieved acceptable manufacturing yields since the June 1998 acquisition, and there is continuing risk attendant to this facility and its manufacturing yields and costs. To the extent JDS Uniphase does not achieve acceptable manufacturing yields or experience product shipment delays, JDS Uniphase's business, operating results and financial condition would be materially and adversely affected. . . .
The impact of these mergers and acquisitions as well as other acquisitions consummated in the past five years resulted in amortization expense of $896.9 million for the fiscal year ended June 30, 2000 and is expected to result in amortization of $4.5 billion for the fiscal year ended June 30, 2001. In addition, we expect to account for the SDL merger using the purchase method of accounting. In-process research and development, which is currently estimated at $185 million, will be expensed in the quarter the merger closes. Intangible assets including goodwill will be generally amortized over a five year period and deferred compensation will be amortized over the remaining vesting period of the unvested SDL stock options assumed by JDS Uniphase of up to four years. The amount of purchase cost allocated to goodwill and other intangibles is estimated to be approximately $38.2 billion. The amount of purchase cost allocated to deferred compensation is currently estimated at $1.6 billion. If goodwill and other intangible assets were amortized in equal quarterly amounts over a five year period following completion of the SDL merger and the deferred compensation was amortized over the remaining vesting period of the options, the accounting charge attributable to these items would be approximately $2.1 billion per quarter and $8.4 billion per year in the year following the closing date of the merger.. . .
Finally, JDS Uniphase's net revenues and operating results in future quarters may be below the expectations of public market securities analysts and investors. In such event, the price of JDS Uniphase common stock and the exchangeable shares of its subsidiary, JDS Uniphase Canada Ltd., would likely decline, perhaps substantially.
[in the SDL portion of the prospectus, there’s a detailed chronology of merger offers, including two before JDSU’s, referred to as “The First Other Offer” and the “Second Other Offer.” I’ve skipped the early paragraphs and picked up when JDSU enters the picture:]
On the evening of May 31, 2000, representatives of Thomas Weisel Partners had dinner with Jozef Straus, JDS Uniphase's Co-Chairman of the Board and Chief Executive Officer, Anthony Muller, JDS Uniphase's Executive Vice President and Chief Financial Officer, and Zita Cobb, JDS Uniphase's Executive Vice President, Strategy and Integration. While the purpose of that dinner was not related to SDL, Dr. Straus expressed his interest in discussing a combination between SDL and JDS Uniphase. . . .
During this time, there were rumors posted in Internet chat rooms and reported elsewhere that SDL was in discussions with different entities concerning a strategic combination. These rumors prompted JDS Uniphase to call representatives of SDL to discuss the status of such discussions. In addition, on May 29, 2000, Dr. Scifres and Dr. Straus had a meeting at which, in addition to discussions on regular business matters between SDL and JDS Uniphase, they discussed general parameters under which they would be willing to consider a strategic combination between SDL and JDS Uniphase. While Dr. Straus expressed his belief that the combination of SDL's and JDS Uniphase's businesses would be a good strategic transaction, Dr. Straus indicated that JDS Uniphase was not able to engage in discussions concerning such 44 52 a combination at that time due to its pending merger with E-TEK Dynamics, Inc. and he urged SDL not to rush into another transaction. In addition, from early May 2000 to July 7, 2000, SDL management and SDL's financial and legal advisors had further discussions with the First Other Organization. On June 9, 2000, a meeting was held between SDL management and First Other Organization management and, on June 15, 2000, the First Other Organization made a new proposal to SDL concerning a strategic transaction between the two parties. However, during this period of time, no proposal was made that included financial terms that were sufficiently attractive to SDL management to warrant continuing those discussions. At the June 22 SDL board of directors meeting, it was agreed that a further board meeting would be held the following Tuesday, June 27, 2000, to further review the Second Other Organization proposal. The Second Other Organization requested the opportunity to meet with members of the SDL board of directors in person. Accordingly, on June 27, 2000, Second Other Organization management met with SDL management and SDL's financial and legal advisors and with members of the SDL board of directors and made presentations on their organization and strategic vision, including their strategic vision for the combined photonics business of SDL and the Second Other Organization. Following those presentations, the SDL board of directors convened a meeting to review its strategic alternatives and the SDL board further evaluated the proposal from the Second Other Organization. At that meeting, SDL management reported on the interest expressed by JDS Uniphase in a strategic combination and the fact that JDS Uniphase was not in a position to engage in negotiations at this time. SDL management also expressed the view that a JDS Uniphase and SDL combination should be further explored. In addition, further discussion of the potential for a strategic transaction between SDL and the First Other Organization was discussed. After the June 27 meeting, SDL informed the Second Other Organization that it was prepared to continue negotiations with respect to a potential business combination with the Second Other Organization, but would be exploring other alternatives as well. On June 27 and June 28, further discussions were held by SDL management and Second Other Organization management in which the Second Other Organization continued to emphasize the importance to the strategic combination of the retention of the SDL management team and the terms and conditions of the transition agreements to be entered into between the Second Other Organization and SDL's management team. The Second Other Organization indicated that entering into such agreements with the SDL management team simultaneously with the definitive merger agreement would be a condition to its willingness to enter into the merger agreement. On June 28, 2000, the Second Other Organization provided SDL with term sheets and a draft transition agreement. On June 29, 2000, Dr. Scifres called Dr. Straus to indicate that SDL expected to be contacting them shortly and that SDL would have limited time within which to consider a potential alternative transaction with JDS Uniphase. On June 30, 2000, Dr. Scifres contacted Dr. Straus, and SDL's financial advisor contacted JDS Uniphase's financial advisors. Dr. Scifres and SDL's financial advisor indicated that SDL would be willing to consider a possible combination between SDL and JDS Uniphase provided that JDS could provide by Wednesday, July 5, 2000 a proposal on the financial and other terms of the combination as well as comments to a merger agreement that would be delivered later that night. JDS Uniphase indicated to SDL and its financial advisor JDS Uniphase's willingness to accommodate SDL's schedule. In those conversations, JDS Uniphase also indicated the importance of retaining the SDL management team and SDL determined to provide JDS Uniphase with draft term sheets and a form of transition agreement with terms equivalent to those being negotiated with the Second Other Organization. On that same date, SDL's legal counsel provided JDS Uniphase with a draft merger agreement. In addition, on June 30, 2000, SDL's legal counsel provided the Second Other Organization with a revised draft of the merger agreement prepared by the Second Other Organization. On July 1, 2000, SDL's legal counsel provided the Second Other Organization's legal counsel with comments on the transition agreements and thereafter provided JDS Uniphase with draft term sheets and a form of transition agreement on terms equivalent to those with the Second Other Organization. 45 53 On July 2, 2000, Dr. Scifres and Mr. Dougherty had a call with Second Other Organization management relating to certain strategic issues in connection with the proposed combination of SDL and the Second Other Organization. On July 3, 2000, SDL's legal advisors and the Second Other Organization's outside and inside legal advisors conducted negotiations of the merger agreement. On July 4, 2000, SDL's management and SDL's financial and legal advisors had a telephonic meeting to go over the status of the discussions with JDS Uniphase and the Second Other Organization. On July 5, 2000, SDL management and SDL's financial and legal advisors met with JDS Uniphase's management and JDS Uniphase's legal and financial advisors to discuss the respective businesses, operations, financial conditions and results of operations of each of SDL and JDS Uniphase and to negotiate the merger agreement and transition agreements. At the end of the meetings on July 5, 2000, JDS Uniphase proposed an exchange ratio of 3.5 shares of JDS Uniphase common stock for each share of SDL common stock, which represented a value of $416.50 based on JDS Uniphase's closing stock price on that date and a premium to the SDL common stock price of 51% based on the closing prices for the SDL and JDS Uniphase stock prices for that date. A $20.00 increase in the closing price of SDL common stock, and a small decline in the closing price of JDS Uniphase common stock, between July 5, 2000 and July 7, 2000 subsequently reduced this implied premium. During the course of negotiations on the terms of the merger agreement and the transition agreements, JDS Uniphase expressed a willingness to increase the proposed exchange ratio. During the negotiations, SDL continued to emphasize to JDS Uniphase its desire to achieve a 50% premium. During this time, each of JDS Uniphase and the Second Other Organization conducted due diligence with respect to SDL, and SDL conducted due diligence with respect to each of JDS Uniphase and the Second Other Organization. During the evening of July 6, 2000, SDL's legal counsel and the Second Other Organization's outside legal counsel as well as members of its management, including internal legal counsel, continued to negotiate the terms and conditions of the merger agreement and the transition agreements. On July 7, 2000, SDL management together with SDL's financial and legal advisors met with Second Other Organization management together with the Second Other Organization's financial and outside and internal legal advisors and again continued to negotiate the terms of the merger agreement and the transition agreements. At that time, SDL indicated that it was seeking a 50% premium to SDL's common stock price and that the Second Other Organization's current proposal would only result in a 39% premium on that date based on the closing prices of SDL and the Second Other Organization's common stock on that date. At the end of the day on July 7, 2000, Dr. Straus met with Dr. Scifres and indicated that JDS Uniphase would offer to SDL an exchange ratio of 3.8 shares of JDS Uniphase common stock for each share of SDL common stock, representing a per share value of $441.51 based on the closing price of JDS Uniphase common stock on that date and a one-day premium of 49.5% based on the closing prices of SDL and JDS Uniphase common stock on that date. Dr. Straus also indicated that JDS Uniphase's offer would expire by noon on Saturday, July 8, 2000 if not accepted. On the morning of July 8, 2000, Dr. Scifres met with members of Second Other Organization management. At that meeting, the Second Other Organization indicated a potential willingness to increase its exchange ratio so that its offer represented a value per share of SDL common stock of $423.53 based on the closing price of the common stock of the Second Other Organization on that date, which yielded a 43% premium based on the closing prices of SDL and the Second Other Organization's common stock on that date. Dr. Scifres indicated that in order for the Second Other Organization to be competitive, the Second Other Organization would have to increase its exchange ratio so as to yield a 50% premium. While Second Other Organization management indicated a willingness to meet that request, they also indicated that any revised proposal would require board approval which could not be obtained until the following day. On July 8, 2000, at approximately 1:30 p.m., Dr. Scifres met with JDS Uniphase management and JDS Uniphase's financial advisors at which time Dr. Scifres indicated his willingness to present and 46 54 recommend the JDS Uniphase proposal to the SDL board of directors at its meeting to be held on July 9, 2000. At approximately 1:00 p.m. on July 9, 2000, the SDL board of directors held a meeting to consider SDL's strategic alternatives. At that meeting, Dr. Straus and Mr. Muller made presentations to the SDL board of directors concerning the business, operations and financial performance of JDS Uniphase and their strategic vision for the combined SDL and JDS Uniphase business. Following that presentation, the negotiations with JDS Uniphase and the Second Other Organization were described in detail to the SDL board of directors and the SDL board of directors was updated on the status of the discussions with the First Other Organization. SDL management reviewed with the SDL board the results of the conversations conducted the prior week with respect to the businesses, operations and financial performance of JDS Uniphase, and SDL management and SDL's legal counsel explained in detail to the SDL board of directors the terms of the merger agreement, including, among other things, each party's duty to take such actions reasonably required to obtain regulatory approvals, the termination fee and under what circumstances such fee was payable and the terms of the transition agreements and the related cash payments and stock option grants to be made to SDL management in connection with the merger. SDL's legal counsel also advised the members of the SDL board of the legal standards applicable to their consideration of the merger agreement and other arrangements. In addition, SDL's financial advisor made a presentation to the SDL board of directors concerning the fairness of the exchange ratio from a financial point of view to the SDL stockholders. SDL's financial advisor's opinion stated that, as of July 9, 2000, the exchange ratio was fair from a financial point of view to the SDL stockholders. After lengthy discussions of the merger agreement and the transactions contemplated by that agreement and the other information presented to the SDL board by SDL management and SDL's legal counsel, the SDL board of directors unanimously approved and authorized the merger agreement and recommended that the merger agreement be submitted to the SDL stockholders for adoption. Following the July 9, 2000 special meeting, representatives of SDL and JDS Uniphase signed the merger agreement on behalf of their respective companies and SDL management and a representative of JDS Uniphase signed the transition agreements. REASONS FOR THE TRANSACTION |
