Lumentum Sweeps Up Oclaro in $1.8B Deal

SAN DIEGO, Calif. -- OFC 2018 -- Lumentum gave the crowds at this annual optical love-fest something to get excited about Monday with the news that it is acquiring fellow optical components specialist Oclaro in a $1.8 billion cash and stock deal.

The agreed deal will see Oclaro Inc. (Nasdaq: OCLR) shareholders get $5.60 in cash and 0.0636 per Lumentum Holdings Inc. share, a combo that values Oclaro at $9.99 per share or approximately $1.8 billion in total (based on the closing price of Lumentum's stock on March 9 of $68.98). The deal is expected to close during the second half of this year.

The news lit a fire under Oclaro's stock, which jumped by $2.15, or 27.45%, to $10 in Monday trading.

Lumentum's stock, meanwhile, gained 4.46% in value to $72.05, suggesting that investors are happy with the move.

The rationale behind the deal is that Oclaro's portfolio of in-demand "Indium Phosphide laser and Photonic Integrated Circuit and coherent component and module capabilities" will strengthen Lumentum's offerings and broaden its revenue sources. "The combined company will drive innovation faster and accelerate the development of products to enable our customers to win," stated Alan Lowe, Lumentum's president and CEO, in the official announcement about the deal.

Lumentum estimates the deal will enable it to find $60 million in joint operating cost synergies within two years and immediately add to its bottom line. Oclaro is a profitable company that generates annual revenues of around $550 million.

While the two companies have some overlap, there are enough benefits to make the deal worthwhile, according to Simon Stanley, Heavy Reading analyst at large and optical component sector expert. "Lumentum and Oclaro have similar 100G data center and coherent solutions. Both were part of the 400G coherent deal with Ciena and at ECOC [September 2017] both said they were developing similar 400G data center solutions, so there is a lot of overlap on products." (See Ciena Sets Its WaveLogic Free.)

Stanley notes that Lumentum had kept quiet about what it is showing or planning for the show, probably because of the impending M&A announcement, while Oclaro is showing off several 400G solutions.

"I think the key benefits for Lumentum will be: Gaining the scale to challenge Finisar; cost savings on R&D, sales and so on; technical capabilities around Indium Phosphide lasers, PICs and coherent; and possibly gaining some ground in 400G if Lumentum's 400G developments are behind Oclaro's," adds the analyst.

That Lumentum will become more competitive with Finisar is an interesting point. While Oclaro's acquisition isn't a big surprise -- it's been coveted for a while -- it was Finisar, rather than Lumentum, that had often been cited as the most likely buyer in the past. (See Should Finisar Buy Oclaro? and Oclaro's Numbers Will Send Optical Pulses Racing.)

— Ray Le Maistre, Editor-in-Chief, Light Reading