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Optical components

Bookham's Gain Causes Pain

Struggling components vendor Bookham Inc. (Nasdaq: BKHM; London: BHM) announced some debt-erasing moves and an extended contract with key customer Nortel, but investors reacted by chasing the stock down as much as 11 percent today.

All told, Bookham is taking care of $45.9 million in secured notes and $25.5 million in convertible debentures, in both cases converting much of the debt into stock. (See Bookham Refinances.)

Bookham extended its contract with Nortel Networks Ltd. , which represented 54 percent of Bookham's revenues in the September quarter, according to Securities and Exchange Commission (SEC) documents. Nortel committed to buying $72 million in components from Bookham, extended the companies' pricing agreement through December, and agreed to a lockup of its 4 million Bookham shares until July 1.

Last March, a similar announcement nearly doubled Bookham's share prices in a day. Nortel had agreed to a 12-month contract that included pricing more favorable to Bookham and also guaranteed $50 million in purchases; it's that contract that was extended today. (See Bookham Soars on Nortel News.)

So why is the stock down today? Possibly because Bookham had to pay cash and issue tons of new shares to make all this happen -- 10.3 million shares, plus warrants for another 1.1 million shares. (Bookham had roughly 45 million shares outstanding as of yesterday.)

Here's how it all breaks down:
  • Bookham paid Nortel $20 million cash plus $2.2 million interest to retire a $20 million note due in 2007. Bookham held $35 million in cash and $144 million in total assets (including things like inventory and accounts receivable) as of Oct. 1.
  • Bookham converted a $25.9 million note, due November 2006, into 5.12 million shares plus warrants to purchase 686,000 more.
  • Holders of $25.5 million in convertible debentures are converting the debt into stock. Bookham so far has issued 3.9 million shares and warrants for 304,000 more. A remaining $6.1 million chunk of the debentures will be converted within the next 60 days, Bookham expects, adding another 1.3 million shares and 109,000 in warrants to the tally.
All warrants come with a price of $7 per share.

One factor that might have prompted the deals is that Bookham's stock has recovered from a dismal 2005, when its value fell 82 percent. (See 2004 Top Ten: Stock Gains & Pains.) The share price has more than doubled since early summer as Bookham has progressed with its long-term cost-cutting moves, which include the offshoring of some work to Asia. (See Bookham Ships More Jobs to China.)

Bookham stock traded down 45 cents (7%) at $6.00 midday. Earlier, the stock had fallen 73 cents (11%) to $5.72.

— Craig Matsumoto, Senior Editor, Light Reading

phishphood 12/5/2012 | 4:09:15 AM
re: Bookham's Gain Causes Pain Ok, maybe I get it. Positive for the company (valuation), negative for any existing shareholders who only see the 7% loss.

Why does a dilution of this magnitude not require a shareholder vote?
phishphood 12/5/2012 | 4:09:15 AM
re: Bookham's Gain Causes Pain If Bookham diluted their stock by ~20%

...issue ... 10.3 million shares, plus warrants for another 1.1 million shares. (Bookham had roughly 45 million shares outstanding as of yesterday.)

and the share price fell a total of 7% on the day, isn't this a net gain in valuation?

Why is this not positive news? (Not sarcasm, I genuinely don't get it)

P.
Pete Baldwin 12/5/2012 | 4:09:14 AM
re: Bookham's Gain Causes Pain Phishphood -- thanks for the input, and you're right on both counts. The math works out as a net positive to valuation ... but tell that to the guy who bought shares at yesterday's $6.80 intraday high. :)

Short-term stockholder pain, but -- removing some of this debt has to be good for Bookham long-term, yes?

Is this an example where a company's interest (which is long-term) conflicts with that of shareholders (many of whom are probably short-term hedge-fund types?)
DZED 12/5/2012 | 4:09:13 AM
re: Bookham's Gain Causes Pain "Is this an example where a company's interest (which is long-term) conflicts with that of shareholders (many of whom are probably short-term hedge-fund types?)"

Shareholders ARE the company. If they are short-termers they deserve to go down with it.

Share price: Bear in mind Bookham is yet to regain the position before they relisted in the US.

Nortel debt: I assume Nortel basically called the loan in in light of Bookham's recent share sale bonanza. After all, Nortel extended the loan once before when repaying would have collapsed the company. Really Bookham aren't repaying early, just slightly less late.

I haven't done the calcs, is Bookham forward or backwards in terms of fuel for the fire, I mean working capital, after the stock sale and debt repayment?
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