JDSU Buys Into Testy Market

Buying big once again, JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) is launching a major test-and-measurement play with the $760 million acquisition of privately held Acterna Corp. (see JDSU to Acquire Acterna).

The deal, worth $450 million in cash and $310 million in stock, is expected to close in September. Acterna CEO John Peeler would remain with JDSU to head the "newly formed communication test and management product group," JDSU chief executive Kevin Kennedy told analysts on a conference call today.

Acterna's inclusion would give test a new status within JDSU. "That has been not a central sales focus for us and will be a central sales focus for John," Kennedy said.

Acterna is no small fish, with 1,770 employees and revenues of $440 million for the year ended March 2005, an 8 percent gain from the previous year.

JDSU's test-and-measurement plays so far have involved products sold to equipment vendors. Acterna, by contrast, sells directly to service providers including cable operators, opening some key new markets for JDSU. Moreover, Acterna would provide some diversification. JDSU's communications sales depend largely on the big equipment vendors, but Acterna gets 80 percent of its revenues from 250 customers, Kennedy said.

Given that Acterna is pro forma profitable with gross margins exceeding 50 percent, the acquisition also would speed JDSU's drive to profitability, Kennedy said.

Of course, big-ticket acquisitions got JDSU in trouble after the telecom crash. As the values of its purchases plummeted, JDSU was forced to write off tens of billions of dollars in goodwill and lay of tens of thousands of employees (see JDSU's Acquisition Hangover and JDSU Writes Off Billions More).

In slowly working its way back into the acquisition game, JDSU has played for smaller stakes, such as this year's $65 million buy of Lightwave Electronics (see JDSU Buys Lightwave Electronics and JDSU Grooms Tiny Acquisitions).

"We do not underestimate the challenge of integrating a company of this scale and breadth," Kennedy said, adding that JDSU will withhold details of the integration until the deal closes.

— Craig Matsumoto, Senior Editor, Light Reading