JDSU/SDL: A Component Powerhouse

JDSU Inc. (Nasdaq: JDSU) and SDL Corp. (Nasdaq: SDLI), two of the largest fiber-optics component makers, announced today an agreement to merge in a transaction valued at approximately $41 billion.

The deal will fill holes in JDSU's already substantial component portfolio and make the company, by most accounts, the dominant provider of fiber-optic components. Of particular interest to JDSU was SDL's pump lasers and arrayed wave guides, two critical components used in the manufacturing of fiber-optic systems.

"The breadth of products these two companies will have together is amazing," said Alan Bezoza, analyst with CIBC. "This is a clear-cut case of two companies getting together to expand capacity and bring their teams together."

JDSU recently completed its merger with E-Tek Dynamics after several months of regulatory review (see JDSU/E-Tek Merger Approved: No Surprises). An agreement with the U.S. Department of Justice eventually cleared the deal for completion.

Bezoza said he expects JDSU, E-Tek, and SDL to report better-than-expected earnings for the upcoming quarter. He said that consolidation is likely to continue in the industry, as the deal now puts pressure on competitors such as Lucent Technologies Inc. (NYSE: LU) and Corning Corning Inc. (NYSE:GLW) to find their own combinations.

JDSU will swap 3.8 shares of JDS Uniphase common stock for each common share of SDL, according to the agreement. In early trading on Nasdaq, JDSU shares were off nearly 18 percent, trading at $95, and SDL shares traded up 7 percent, to $315.

The deal is subject to regulatory approval, but a break-up fee attached to the agreement discourages competing bids. If SDL is purchased by another party, JDSU will claim a $1 billion break-up fee as part of the agreement, according to Bezoza.

--R. Scott Raynovich, Executive Editor, Light Reading
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