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Bookham Readies New Round

Light Reading
News Analysis
Light Reading
9/13/2000

Bookham Technology PLC (London: BHM; Nasdaq: BKHM) has filed to offer a second round of common stock sometime next week. But in contrast with the optical component vendor's stellar performance after its April IPO (see Bookham's Share Price Soars After IPO), this sale looks like it may be a dud.

Here's why: While Bookham's got lots going for it (see Bookham (LSE: BHM; Nasdaq: BKHM)), analysts think its stock's too expensive. Any additional sale of shares will dilute the overall value of the company, and investors aren't willing to pay more for less.

"Bookham's trading at 65 times its projected 2001 revenues," says Alan Bezoza, research analyst at CIBC World Markets. (The vendor has a market capitalization of $6 billion.) In comparison, he says, leading optical component vendor JDS Uniphase Inc. (Nasdaq: JDSU) is currently trading at 25 times projected revenues, with a market cap of $82 billion.

Considering those multiples, it's not likely Bookham will get buyers willing to pay more than its existing share price, which has ranged from $50 to $52 recently.

In fact, Bookham's share price seems to get lower as the pending sale approaches: This week, the share price has fallen steadily, and today it was down nearly 5 percent by midday.

Still, as one investment banker said anonymously: "Someone's going to make a ton of money on this deal."

Quite who's going to benefit isn't clear because Bookham's filing to the U.S. Securities and Exchange Commission isn't available for inspection online, as would normally be the case with a U.S. company. However, Bookham's announcement of its offering today states that during the "week commencing 18 September," a total of 18,510,016 shares of common stock will be issued, including "15,445,468 existing shares to be sold by selling shareholders."

That means that company insiders -- management, employees, or private investors -- are using the secondary offering as an opportunity to sell significant stakes for a load of ready cash. Such a large insider selling binge only five months after the IPO leads one to wonder if the insiders themselves might think Bookham is overvalued.

Even if the 3 million remaining, newly issued shares should fall below $50 apiece on Nasdaq, Bookham should still realize substantial profits from the sale, which is being led by Goldman Sachs (NYSE: GS). Bookham says it's going to use the money to complete a project to quadruple its manufacturing capacity, hire more help, and prepare for acquisitions in the future.

What acquisitions might those be? "We're looking at a range of specific areas where we might add on, including manufacturing or electronic components to integrate with our existing ones," says Bookham spokesperson Rachel Woodford. "We'll be making further announcements as things unfold."

-- Mary Jander, senior editor, Light Reading

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