JDSU and E-TEK: The Omens Are Good

It's been a nail biting saga for investors following the planned merger of JDS Uniphase Corp. http://www.jdsu.com and E-Tek Dynamics http://www.e-tek.com.

The deal was delayed back in March, when the government asked for additional information from both companies to evaluate whether or not the merger would violate anti-trust laws outlined in the Hart-Scott-Rodino Act. But as the case is scrutinized, many industry experts say there is little to worry about.

"I think the odds are in favor of the merger going through," says Rich Schaefer, equity analyst for CIBC World Markets http://www.cibcwm.com. "It's a no brainer. It's more a matter of educating the DOJ and holding their hands as they walk through the issues."

JDS Uniphase has catapulted to the top of the optical components industry; its stock price has risen 419% since last July. In the last year the company has used its capital to go on a buying spree, beefing up its presence in almost every area of the market. But when JDS Uniphase announced a $15 billion merger with E-TEK, its arch rival in the WDM filter market, stock prices dipped as much as 5% as spooked investors sweated about anti-trust concerns.

Those concerns hinge on whether the merged mega-company would have too much control over the component market -- enabling it to shift the price of key optical components, and leaving system vendors like Alcatel SA http://www.alcatel.com, Lucent Technologies http://www.lucent.com and Nortel Networks http://www.nortel.com at its mercy.

"If you merge with your major competitor what happens to your customers?" says Jay Leibowitz, director of optical components for RHK http://www.rhk.com. "Why do you think Microsoft is in trouble?"

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