Corning and Lucent May Reach Deal
Speculation is growing that Corning Inc. (NYSE: GLW) will soon make a bid to buy the Optical Fiber Solutions Group of Lucent Technologies Inc. (NYSE: LU).
"It's certainly a strong possibility at this point," says a director at a Wall Street investment bank, who requested anonymity. "I think we'll hear about this very soon."
Despite a lack of confirmation from both companies, sources say the only holdup is the concern by the U.S. Department of Justice about the potential size of Corning's market share should the deal go through.
"Corning would like to buy [Lucent's cable business], but the issue is: Will they be allowed to?" says John Dexheimer, president of Lightwave Advisor (no Website), an independent investing and consulting firm in Connecticut.
According to market research firm KMI Corp., Corning and Lucent share nearly half of the worldwide fiber optic cable market, which reached about $2.7 billion in 2000 and is set to grow 30 percent this year.
"[It's going to be] very, very tough for GLW [Corning] to pass this through DOJ," writes Jim Jungjohann, analyst with CIBC World Markets in an email note to Light Reading. He adds that Lucent's not likely to want to wait for a long, extended sales process, such as the one that marked the acquisition of SDL Inc. (Nasdaq: SDLI) by JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU).
Some analysts think it may be significant that Corning and Lucent are both U.S. companies. "It may help their case that the alternative to Corning buying Lucent's cable business is that otherwise it would go to a company outside the U.S.," Dexheimer says.
The other top players in the fiber optic cable market, who also seem to be in a financial position to be potential buyers of Lucent's Optical Fiber Unit, include Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Fujikura, Furukawa Electric Co. Ltd., Hitachi Ltd. (NYSE: HIT; Paris: PHA), Pirelli Cables and Systems, Sumitomo Corp., and a variety of Korean manufacturers -- according to KMI's research.
Another issue is price. According to an article in last week's Wall Street Journal, revenues from Lucent's Optical Fiber Unit totaled about $2 billion, and the paper quoted analysts -- including CIBC's Jungjohann -- as speculating the company might fetch as much as four times that amount in a sale.
But others aren't so sure. "Price? I don't have a good sense for it here," Dexheimer says. "Lucent's not in a great negotiating position, though."
He also questions the possible impact a sale of its Optical Fiber Unit might have on Lucent. According to its SEC filings, the unit was the only one in the company to post sales growth last quarter.
"If the sale goes through, it would clearly represent the last item of value Lucent has to offer," Dexheimer says. "I don't expect Lucent to last as a single business entity for longer than another two years."
Other analysts wonder how much the potential sale would benefit Corning. "To just buy more of the same -- I'm not sure that's good for Corning," said one analyst anonymously. "I'd like to see them try harder to expand out horizontally instead of just buying more fiber."
For their part, the companies involved aren't talking, even though the industry seems to take the possible sale as a given. "I'll reiterate what Jim Flaws [Corning's CEO] said last week: It's all rumor and speculation. I will neither confirm nor deny it," says a Corning spokesperson.
Lucent spokespeople are towing the same line, and add that the idea that its cable business is up for sale is in itself a rumor that Lucent never has confirmed.
-- Mary Jander, senior editor, Light Reading http://www.lightreading.com