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Optical components

Finisar Denies Takeover Talks

Frank Levinson, chairman, founder, and CTO of Finisar Corp. (Nasdaq: FNSR) has denied a rumor that a possible acquisition by Emulex Corp. (NYSE: ELX) is in the works.

The rumor was triggered by a report that a team of auditors from Emulex spent the latter part of last week camped in Finisar's active components division in El Monte, Calif. This came from a consultant -- a previously reliable Light Reading source -- who went on to suggest that Emulex would soon make a bid for Finisar.

Finisar didn't respond to requests for comment on Friday, suggesting there was some truth to the story.

However, Levinson -- or someone claiming to be Levinson -- jumped into action in the early hours of Saturday morning, posting a message on the board following this story which began:
    As Finisar's largest shareholder, CTO, Chairman and founder I can state categorically that there is no truth in this rumor. Emulex did not have any auditors at Finisar this week for any financial review. We are not in discussions with Emulex on any matters except normal vendor customer matters.


Click here to read the full message, and a subsequent message pointing out: "If you are going to lie to the press, you don't have the Chairman do it."

So, rumor duly squashed. However, it's worth examining why it sounded credible in the first place.

For a kickoff, it's thought that Emulex, which makes adapters for storage-area networking, has been looking for years to buy a transceiver outfit of its very own; and Finisar, which makes a range of datacom transceivers, fits the bill. The consultant that started the latest rumor says Emulex already passed on the chance to buy Stratos Lightwave Inc. (Nasdaq: STLWD) months ago. Now, with its eye on 10-Gbit/s Fibre Channel, Emulex could be readier than it's been in the past (see Xilinx, Emulex Create 10-Gig FC and Emulex Cooks Up 10-Gig FC Demo).

Finisar, however, wouldn't be a bargain to buy. It has a market cap of $289.8 million and $112 million in cash at the end of last quarter. Finisar also has about $125 million in debt. "They'd have an enterprise value of about $310 million -- that's what a company would have to pay to take them over," says one financial analyst, who also spoke on condition of anonymity.

Could Emulex have afforded it? Its last quarterly report boasted revenues of $70.4 million, up 34 percent year-over-year (see Emulex Q1 Profits Rise). And with about $322.2 million in cash on hand, the company certainly seems to be doing better than some in the industry.

Still, would such a buy have been wise? Some have their doubts. "The downturn has marked a profound change in the component business. Transceivers have become commoditized, everything's going to China," says the consultant quoted earlier. He says companies such as Finisar, Optical Communication Products Inc. (OCPI) (Nasdaq: OCPI), and Stratos Lightwave aren't going to be able to compete against the growing roster of resident Chinese, Taiwanese, and Korean competitors that make all kinds of transceivers at margins at least 20 percent lower than competitors elsewhere.

There are other problems. "Finisar spends a lot on R&D and their fixed overhead is very high," says the financial analyst quoted earlier. He says the company's roster of products, while cutting-edge, is very diverse and costly to support and develop.

— Mary Jander, Senior Editor, Light Reading
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flevinson 12/5/2012 | 12:50:53 AM
re: Finisar Denies Takeover Talks As Finisar's largest shareholder, CTO, Chairman and founder I can state categorically that there is no truth in this rumor. Emulex did not have any auditors at Finisar this week for any financial review. We are not in discussions with Emulex on any matters except normal vendor customer matters.

Emulex is a long term, valuable partner and customer of Finisar. We value their business and work with them as well as other customers.

A full retraction for this story should be posted by LR ... there is no basis for any of the elements of this story.

Frank Levinson
Finisar Corporation

For additional information about Finisar please visit our web site www.finisar.com i publish a column there and will shortly post a more detailed debunking of this false article.
BlueFox 12/5/2012 | 12:50:52 AM
re: Finisar Denies Takeover Talks This might turn out to be an interesting conundrum. Who do we believe? How does either view justify itself? Apparently, one view is wrong. What is the point of saying something false? Is there a short term benefit? Has one view been fooled? If so, why?
lightmaster 12/5/2012 | 12:50:51 AM
re: Finisar Denies Takeover Talks How rumors get started (in theory, not based on knowledge of this particular situation):

-Vendor sends a team to a supplier for a normal quarterly manufacturing "review" (going over inventories, quality, pricing, etc.).
-Some mid level puke hears vendor is here "reviewing" supplier, not really knowing what that means. .
-Consultant hears from puke that they are being "reviewed/audited" and draws his own conclusions.
-Consultant, whos ego gets stroked by repeating rumors that only he/she knows, tells Light Reading reporter.
-LR reporter, knowing that NOTHING newsworthy is happening this week, repeats the rumor in print.

P.S. If you are going to lie to the press, you don't have the Chairman do it. You send the VP of Marketing to spout some nonsense about "no discussions at this time", meaning discussions have ceased for the day.
realoptics 12/5/2012 | 12:50:46 AM
re: Finisar Denies Takeover Talks Like Lightmaster has said: you do not need a Chairman to came out to lie, Levinson is telling the truth.

As the way many people look at Finisar, the company may grow to even bigger than Emulex, sizewise by itself, so why they want to sell?

The article has a lot of nonsense anyway, for exmple, Finisar is currently manuafacturing almost everything in Malaysia, they can well compete with the Chinese, yet the article did not mention anything on it.

Bad journalism.
NYChet 12/5/2012 | 12:50:43 AM
re: Finisar Denies Takeover Talks It's a sad day when an otherwise respected industry publication begins a story about two public companies with the words "Rumor has it that..." and then goes on with a storyline containing no evidence that the key theme of the story nor the headline itself is actually true.

It's also sad when the only quote from a company named in the article is from the receptionist, and the senior management of the company is not given an opportunity to comment prior to the publication of the article.

It's unfortunate that the only relevant information in the entire article comes from a "consultant who requested anonymity," when there are so many good, knowledgeable industry analysts and financial analysts readily willing to be quoted by the media.

Looking at the other messages posted on this message board, it would appear that this article is an unfortunate example of poorly researched, unsubstantiated, rumor-based journalism. The readers of Light Reading and the general public that invests in publicly-traded stock deserve better than this.









jamesoid 12/5/2012 | 12:50:43 AM
re: Finisar Denies Takeover Talks Mr. Levison is setting a positive example in his openness as an Managing Officer to respond personally in this public forum. Also, Emulex has been the object of overt rumor mongering before and there was reaction then. He refutes buzz promulgated by media. I will listen to him. I do not own stock but I note his response as a major shareholder with an insider view and a sense of ethics.
gea 12/5/2012 | 12:50:42 AM
re: Finisar Denies Takeover Talks Well, I've met with Frank Levinson on several occasions and received a tour of his facility in Silicon Valley.
And my first reaction to this story was, "Emulex buy FINISAR?" It seemed highly improbable to me for several reasons.
The main reason is that Frank and Co run such a tight ship that I can't imagine anyone conceiving of a potential change in management being a good thing. In addition, FL (and some of the other Finisar big shots) was not "brought in" by VCs later, but pretty much grew this thing from scratch. So I can't see them selling off this thing any time soon.

Frank Levinson is the real McCoy: an aggressive Silicon Valley CTO who loves being in the game and is damned good at it. No, I had big enough doubts about this story that I thought it some passing rumor at best. And Frank's word confirms that as far as I'm concerned. Is there any basis in reality for the rumor? Doesn't matter.
zipple 12/5/2012 | 12:50:42 AM
re: Finisar Denies Takeover Talks "Mr. Levison is setting a positive example in his openness as an Managing Officer to respond personally in this public forum. Also, Emulex has been the object of overt rumor mongering before and there was reaction then. He refutes buzz promulgated by media. I will listen to him. I do not own stock but I note his response as a major shareholder with an insider view and a sense of ethics."

______________________

It's great that a chairman of the board comes out to reply, but let's not kid ourselves: he's acting in his best interest.
Peter Heywood 12/5/2012 | 12:50:39 AM
re: Finisar Denies Takeover Talks We've updated the story to lead with Finisar chairman Frank Levinson's denial of the rumor.

The original story was published on Friday evening, when we hadn't been able to get a comment from Finisar.

Deciding whether or not to publish stories about rumors is a fine judgement call. In this case, it looks as though we overstepped the mark.

This episode demonstrates the power of our message boards - in giving folk the immediate right of reply and in allowing readers to haul us over the coals when we make a mistake.

Peter
laserpro 12/5/2012 | 12:50:39 AM
re: Finisar Denies Takeover Talks Most bright people can see what happened here. A Finisar competitor or disgruntled employee deliberately started a wild rumor to damage Finisar's interests and Light Reading fell for the trick. They couldn't find anyone with credibility to go on the record about the rumor, so they called a questionable consultant for some off the cuff comments. Even the consultant didn't feel completely comfortable with the story, and therefore spoke only on the condition of anonymity. Viewers of The West Wing will know that you do that only when you a) want to hurt a rival interest or b) are expressing an opinion that you aren't really sure about. So, don't believe everything you read in Light Reading, weak journalism at its worst.
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