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Nortel Buys JDSU Plant for $2.5B

JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU) announced this morning that it will sell a huge DWDM components plant to Nortel Networks Corp. (NYSE/Toronto: NT) for $2.5 billion. The move has opened the way for JDSU to finish the purchase of SDL Inc. (Nasdaq: SDLI). It also gives an enormous boost to Nortel's own component plans.

The sale of the 980-nanometer pump laser facility used in DWDM (dense wavelength-division multiplexing) gear was an anticipated part of JDSU's plan to purchase SDL (see Who Gets a JDSU Jewel? and JDSU and SDLI Delay Merger, Again), which has now been approved by the U.S. Department of Justice, JDSU says. All that remains is for JDSU and SDL stockholders to approve the merger in a February 12 meeting.

Nortel seems thrilled with the buy. "This transaction strengthens Nortel's supply chain for critical optical modules, adds to its presence in Europe, and expands our customer base," said Greg Mumford, president of Nortel's Optical Networks group in a conference call with analysts this morning. He said the Zurich plant had approximately 40 percent of the market share for 980nm pump lasers.

Terms of the all-stock deal call for Nortel to purchase the plant with $2.5 billion of its own common stock. Also, Nortel has committed to accept a certain level of component supplies from JDSU, and if it cannot take that supply it will pay another $500 million to JDSU by December 31, 2003. Mumford said the supply agreement covers JDSU products "across its entire line."

In return for its payout, Nortel gets the Zurich manufacturing plant as well as an office in Poughkeepsie, N.Y., which specializes in designing automation for the Zurich plant. Both facilities will become wholly owned subsidiaries of Nortel, and personnel in both locations will stay put. Stephen Reilly, general manager of the Zurich plant, will report to Liam Nagle, VP of operations for Nortel's High-Performance Optical Component Solutions.

Besides opening the merger of JDSU and SDL, the deal is interesting on several other counts, analysts say. Its huge contribution to Nortel's component-making capabilities raises the question of when Nortel will proceed with the planned spinoff of its microelectronics unit (see Lucent's Agere Files for IPO).

Nortel says today's news doesn't signal any specific plans for the spinoff, but it should help buttress an IPO for that unit later this year. "We're clearly on a path of increasing the value of our components unit," Mumford says. He also told analysts this morning that the company would pursue any further investments and acquisitions it needs to strengthen its microelectronics unit.

This morning, JDSU shares were trading at 50.00 (no change); SDL shares at 185.38, down 0.22 (0.12%). Nortel shares were trading at 35.76, down 0.25 (0.69%).

More information will be added to this story as it materializes throughout the day.

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com

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