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Optical/IP

Avanex to Buy Alcatel, Corning Units

A long-awaited shoe has dropped in the consolidating optical components market. Late today, Avanex Corp. (Nasdaq: AVNX) announced plans to purchase Alcatel Optronics (Nasdaq: ALAO; Paris: CGO.PA) and some of the assets of the optical components division of Corning Inc. (NYSE: GLW) for stock worth about $63.5 million, based on Avanex's May 9 per-share price of $1.12 (see Avanex Buys Alcatel, Corning Divisions).

Talk of the deal might have been responsible for an unexplained rise in Avanex share prices and trading volumes about 10 days ago (see Avanex Stock Soars).

Under the deal, Alcatel and Corning will transfer more than 1,400 patents to Avanex, and Avanex will continue to contribute optical parts to Alcatel for three years following closure of the deal, which is expected in the third quarter.

"The acquisitions by Avanex will... enable Avanex to offer one of the broadest lines of advanced optical technologies and intelligent photonic solutions to enhance the speed and capacity of optical communications systems," according to the Avanex press statement.

Avanex will part with nearly half of its common stock in the series of transactions: 28 percent will go to Alcatel, 17 percent to Corning. At press time, the employee situation was unclear. Avanex said it would wind up with 1,600 employees, about 400 from Corning. Alcatel Optronics had been winnowing its workforce with a goal of reaching under 500 by the end of this year (see Alcatel Optronics to be Slashed).

The deal is a dramatic conclusion to months of speculation about how Alcatel and Corning would wind up disposing of their photonics divisions, which had burdened both companies during the spending downturn (see Alcatel Optronics Closes 2002 and Corning Q1 Loss Beats Guidance).

The news calls for a reassessment of the optical components market. One question is how the readjustment of power will affect JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU), which has its own set of woes (see JDSU Reports $137M Q3 Loss).

The acquisitions are quite a leap for Avanex, whose employee roster would expand to more than 1,600, compared with roughly 118 in March, according to figures in SEC documents. In a conference call with analysts Monday, company officials repeatedly alluded to an expected restructuring, which seems likely to trim some of that 1,600 staff. Still, some observers prefer this deal to last year's scuttled merger with Oplink Communications Inc. (Nasdaq: OPLK) (see Avanex and Oplink: Wedding's Off). Most analysts believe JDS' wide range of products is a key to that company's post-downturn survival, and the Alcatel-Corning amalgam would bring a similar range to Avanex. "With the acquisition of Oplink, [Avanex] would still have been just a passives business," says Pierre Maccagno, analyst with Needham & Co.. "It's a very complete company, very diversified at this point. The end markets are quite soft, but [Avanex is] positioning themselves well." In Monday's conference call, Avanex CEO Walter Alessandrini said the combined company would have a cash burn rate of $25 million per quarter, not including the costs of expected restructuring. Alcatel and Corning would give $110 million and $20 million to Avanex, respectively, as part of the deal, giving Avanex a cash pool of $250 million immediately following the acquisitions. The Alcatel share is larger because it includes some of the downsizing costs Avanex expects to incur; moreover, Alcatel would receive a larger chunk of Avanex stock than Corning. There's also the fact that Avanex is buying an entire business from Alcatel, warts and all. The Corning deal, on the other hand, involves cherry-picked assets. "We were free to select certain assets and [omit] others," Alessandrini told analysts. Most of the good details are being left until later, including the size of the cuts Avanex would make and the break-even revenue point for the remade company. The deals are subject to approval by Avanex shareholders.

— Mary Jander and Craig Matsumoto, Senior Editors, Light Reading

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Jet 12/5/2012 | 12:04:45 AM
re: Avanex to Buy Alcatel, Corning Units current cash balance is 140 million range with guarterly burn in the 12/million range.

AVNX will be apparently adding 500 employees from Alcatel optics unit, and 400 from Corning - both net of Alcatel and Corning employee reductions - so effect on burn is not determinable currently

AVNX new cash balance should be in 250 million plus range after 110 million payment from Alcatel and 20 million from Corning

AVNX will also be getting revenue streams from both companies lines of business, which of course have costs associated with them - so that question is open

Bottom line AVNX should be stronger financially, and if and when Optics turnaround happens - they will be ideally situated

gameoverman 12/5/2012 | 12:04:45 AM
re: Avanex to Buy Alcatel, Corning Units Pretty heady stuff for avanex. Any one know the financial condition of Alcatel group and Corning. What does this do to Avanex cash burn ? Who cares about great future capability via consolidation and 1400 patents - will they live long enough to see it ?
redface 12/5/2012 | 12:04:44 AM
re: Avanex to Buy Alcatel, Corning Units With second tier players such as Avanex and Bookham expanding their product lines to include almost everything and therefore becoming comparable to JDSU in product breadth, it is hard for JDSU to justify its staggering market cap of $4.7 billion while Avanex has a market cap of only $80 million.
diffraction 12/5/2012 | 12:04:44 AM
re: Avanex to Buy Alcatel, Corning Units
With JDSU and Avanex now established as
large players with a lot of cash to burn,
where does this leave smaller players ?
(For example, Dicon... Will they try a
merger with Oplink ? )


lastmile 12/5/2012 | 12:04:42 AM
re: Avanex to Buy Alcatel, Corning Units "With second tier players such as Avanex and Bookham expanding their product lines to include almost everything and therefore becoming comparable to JDSU in product breadth, it is hard for JDSU to justify its staggering market cap of $4.7 billion while Avanex has a market cap of only $80 million."

You said it right. Avanax and Bookham are second tier players.
The product lines unfortunately do not match JDSU.
JDSU is a trusted name in the fiber community. The consolidation that is taking place now is limited to 3 major suppliers. The second tier guys will have to work really hard to displace this giant (JDSU).
Time will tell!
benson 12/5/2012 | 12:04:42 AM
re: Avanex to Buy Alcatel, Corning Units Folks;

When the history of this optical networking bubble is written, it will be clear that one of the biggest winners was Pirelli:

Fact 1: Three years ago, Pirelli sold their tiny optical components group to Corning for more than 3 BILLION dollars in cash.

Fact 2: Today, Avanex buys the component business of both mighty Alcatel and Corning (including the non-Pirelli parts) for $63 million in Nasdaq-listed paper.

Pirelli laughed all the way to the bank. And then there was that Cisco deal.....

Benson
verstand 12/5/2012 | 12:04:40 AM
re: Avanex to Buy Alcatel, Corning Units It is too early to tell whether this M&A will turn positive or not, or even survive! Remember? Oplink and Avanex! In my view, "integration" is the key. I strongly doubt the current management team of Avanex can handle it without big change!
whyiswhy 12/5/2012 | 12:04:40 AM
re: Avanex to Buy Alcatel, Corning Units Alcatel and Corning are not getting out of the business because they are making money. They just gave their combined messes to Avanex to worry about.

According to the answer to the first conference call question, the net burn will be ($25M) per qtr, on $23M in combined sales (last qtr).

They get $250M in cash to put into the press, but they will have to allocate about half to shutdown and consolidation writeoff costs (guess).

Almost double (180%) the number of shares.

Yet the stock is going up in after hours. Good short bet.

-Why
Bongiorno 12/5/2012 | 12:04:37 AM
re: Avanex to Buy Alcatel, Corning Units It would be interesting to see a new version of the lightreading article article on component vendors which ranked them as below

DECEMBER 09, 2002

Table 1: Components Vendors: Market Share 2002
Top Twelve Components Vendors 2002
1 JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU)
2 Agere Systems (NYSE: AGR/A)
3 Corning Inc. (NYSE: GLW)
4 Alcatel Optronics (Nasdaq: ALAO; Paris: CGO.PA)
5 Furukawa Electric Co. Ltd.
6 Wuhan Telecommunication Devices Co. Ltd.
7 Luminent Inc.
8 Agilent Technologies Inc. (NYSE: A)
9 Nortel Networks Corp. (NYSE/Toronto: NT)
10 OpNext Inc.
11 Shenzhen Photon Technology Co. Ltd.
12 Oplink Communications Inc. (Nasdaq: OPLK)

Interstingly I thought Wuhan Telecom was a chinese 60/40 joint venture originally with Lasetron which is not included in the Avanex deal but will be shut down. Does Corning still own this 40%? Is this included in the deal ?
Photonboat 12/5/2012 | 12:04:35 AM
re: Avanex to Buy Alcatel, Corning Units What are the specific products that Avanex is buying from Corning?

This does not include Corning's Intellisense stuff nor the NetOptix diamond turning facility nor Lasertron, which will be shuttered. What does it include?
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