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JDSU/E-Tek Merger Approved: No Surprises

Light Reading
News Analysis
Light Reading
6/23/2000

The merger between JDS Uniphase Corp. http://www.jdsu.com and E-Tek Dynamics http://www.e-tek.com has been approved by the U.S. Department of Justice (DOJ), but the resultant activity in their share prices appears a bit anticlimactic.

Wall Street has been waiting for quite some time of the outcome of the DOJ's investigation of the merger. If there was any impact at all in the stock prices, it appeared that most investors saw the clearance as slightly better news for E-Tek. JDSU shares shed $0.78 to $124.22, while E-Tek shares surged $3.88 to $273.25 in morning trading on Nasdaq.

A special meeting of E-Tek's stockholders has been set for June 28. If E-Tek's stockholders approve the merger at the meeting, the companies expect to close the transaction shortly after the meeting is completed.

As part of the agreement with the DOJ, JDS Uniphase and E-Tek have agreed to relinquish, over a 90-day transition period, E-Tek's contractual rights of first refusal with respect to the output from coating chambers used for the manufacture of thin-film filters owned by Barr Associates Inc. http://www.barrassociates.com, Herrmann Technology, Inc. http://www.herrmanntech.com (which Lucent recently announced it would acquire), Hoya Corp. USA, and OCJ Corp. In plain English, this agreement means these vendors can more freely sell their products to any interested party, rather than being locked in as suppliers to E-Tek and JDSU.

"These requirements make sense to us, E-Tek has relied on these external suppliers for 75 percent of its thin-film requirements," wrote UBS Warburg http://www.ubswarburg.com analyst Nikos Theodosopoulos in a report on the news. "Because we believe the merger with E-Tek has always been about packaging optical components (including thin film), and not quauntity of thin film, we do not expect that giving up these external sources will have any impact on the strategic nature of the combination or be a hindrance to the growth of the new company."

On July 26, JDS Uniphase will report results for the both the fourth quarter and the fiscal year of 2000. Theodosopoulos said he expects that the company will detail the impact of the merger and he expects both JDSU and E-Tek to exceed earnings and revenue estimates for the quarter.

--By R. Scott Raynovich, Executive Editor, Light Reading (http://www.lightreading.com)

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