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Infineon Calls Off $206M Sale

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News Analysis
Light Reading
1/11/2005
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Infineon Technologies AG (NYSE/Frankfurt: IFX) this morning terminated the $200 million-plus sale of its fiber optics business unit to Finisar Corp. (Nasdaq: FNSR) almost nine months after the original agreement was struck (see Infineon Halts Sale of Fiber Optics).

Infineon says ongoing delays and a lack of support from Finisar's board are to blame.

The original all-stock agreement, struck in April 2004, involved 135 million shares worth $232 million, and was set to pitch Finisar against Agilent Technologies Inc. (NYSE: A) in the optical transceiver market (see Finisar Buys Infineon Optics).

But last October, following weaker financial performance by the Infineon unit, the deal was amended to 110 million Finisar shares, valuing the transaction at $143 million at that time (see Finisar, Infineon Modify Terms and Finisar Cleared to Buy Infineon FO).

At the close of the financial markets yesterday, the deal was worth $205.7 million, with Finisar's share price ending the day at $1.87.

Now, though, Infineon says the deal is off, as Finisar's board was about to withdraw its recommendation to shareholders to vote in favor of the deal. The German firm says it will now restructure the fiber optics unit.

Infineon adds that the long delay and the "high uncertainty of closing are expected to result in deterioration of our fiber optics business and in potential harm to our customers," and that it will assess "the legal options to recover the damages incurred by way of an arbitration proceeding in Germany."

A spokesman says Infineon won't seek another buyer initially. "Our first priority is to fix the business," a process that will involve "several actions," though he declined to elaborate. The fiber optics business currently employs 1,200 staff worldwide, 350 of which are in Germany, and major job cuts look likely.

The news sent Infineon's share price down €0.18, more than 2 percent, to €7.78 on the Frankfurt exchange.

What's next for Infineon? One industry analyst, who preferred not to be identified, says the German vendor's unit isn't strong enough to tough it out in the market alone, and that closure is a possibility. "There are still ruthless price pressures and overcapacity in this market, and it's very painful for a lot of firms. The combination of Finisar and Infineon made a lot of sense, as the resulting business would have had the scale to challenge Agilent and JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU). But clearly the deal became less and less attractive to Finisar, which has been doing better on its own in recent months."

The analyst adds that this leaves Infineon with "a major dilemma if it can't find another buyer, and I can't see Finisar returning with another offer. Infineon needs to act quickly, as the past year has significantly impacted the fiber optic unit's business. No company can survive in the market on a small basis."

— Ray Le Maistre, International News Editor, Light Reading

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