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Alcatel Prepares for a Components War

Light Reading
News Analysis
Light Reading
7/27/2000

The huge market valuations being achieved by optical component manufacturers like JDS Uniphase Corp. (Nasdaq: JDSU) are forcing big vendors to hive off their interests in this field into separately quoted divisions or companies.

The latest vendor to announce such a move is Alcatel SA, which today announced plans to create a so-called tracking stock for its optical components division. Alcatel has called an extraordinary general meeting of shareholders for Sept 20 to get their approval for the scheme, under which it would issue special “O” class shares in its Optronics Division.

Alcatel says its plans will “enhance market recognition of the Optronics Division's value and increase Alcatel's ability to respond to strategic opportunities in the optical industry.”

In plain English, that means it's minting new currency to help it join in the merger mania gripping the optical components industry. That mania now embraces the proposed merger of JDS Uniphase and SDL Corp. (Nasdaq: SDLI) (see JDSU/SDL: A Component Powerhouse), as well as a possible merger between Nortel Networks Inc. (NYSE, TSE: NT) and Corning Inc. (NYSE: GLW) (see Nortel/Corning: Components Paranoia Grows).

Alcatel isn't the only vendor taking this tack. Only last week, Lucent Technologies Inc. (NYSE:LU) announced plans to spin off its micro-electronics business – which makes optical components and integrated circuits – into a separate company. In this case, Lucent plans an IPO for up to 20 percent of the company by the end of the first quarter of 2001. It plans to spin off the company completely by the summer of 2001.

Only a few months ago, Lucent’s CEO, Richard McGinn, told journalists that he saw “no compelling reason” why such a spinoff would unlock shareholder value (see Vendors To Spin Off Optical Assets). Recent developments appear to have led to a change of tune.

-- Peter Heywood, international editor, Light Reading http://www.lightreading.com

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