Infinera says takeover will help it address entire WDM market and target 100G opportunities from next year onwards.

Iain Morris, International Editor

April 9, 2015

3 Min Read
Infinera Makes $350M Offer for Sweden's Transmode

Infinera has made a $350 million offer to buy Sweden's Transmode as it looks to broaden its portfolio of optical networking products and bolster its presence outside North America.

Infinera Corp. (Nasdaq: INFN) hopes the combination of its long-haul optical transport capabilities with Transmode Systems AB 's expertise in metro core, edge and access will allow it to address the entire WDM market. It also believes the takeover will help it meet demand for 100G metro aggregation deployments from 2016 onwards.

The offer is based on a mixture of cash and shares, with Transmode investors set to receive 300 Swedish kronor ($34.53) and 4.705 Infinera shares for every 10 shares in Transmode. That will see Infinera pay around $96 million in cash, drawn from overall holdings of $391 million, and issue approximately 13 million new shares. It will leave Transmode shareholders holding 8.7% of the combined company.

The price per share works out at SEK109 ($12.54) -- 12.5% more than Transmode's closing share price on Wednesday.

Transmode investors reacted positively to the news on Thursday morning, sending the Swedish company's share price up nearly 15% in early-hours trading, to SEK110.75 ($12.75).

Transmode's board of directors has advised shareholders to accept the offer, which is expected to close in the third (July-to-September) quarter, while leading shareholder Pod Investment -- which owns a 33% stake in the business -- has already backed it.

Because there is limited overlap between the Infinera and Transmode businesses in terms of product offerings, geographical presence and customers, the deal is expected to lead to major synergies.

Some of those are likely to come from the integration of Infinera's photonic integrated circuits with various Transmode products. Infinera also believes it will gain "negotiating leverage" with suppliers and be able to cut operating expenses through the avoidance of "duplicative costs."

In a detailed statement, it said it was not planning to make any "material changes" to the Transmode business in the near term but hinted that staffing cuts might happen in the future. Infinera has also indicated that Karl Thedéen, Transmode's CEO, will lead the metro aggregation business operations of the combined company.

Infinera says the transaction could have a slightly dilutive impact on its earnings in the second half of the year but will be earnings accretive in 2016.

Want to know more about 100G? Check out our dedicated 100G content channel here on Light Reading.

"The combination ensures we are well positioned to be a leading provider in the metro aggregation market as this market transitions to 100G," said Tom Fallon, Infinera's CEO, in a company statement. "Transmode's services-rich metro platforms, broad European customer base and profitable business model are naturally complementary to Infinera."

Infinera has remained something of a stock market darling over the past year, doubling the value of its share price in that period, and it recently revealed it has been working with Facebook on the social networking giant's European network. (See Infinera's Big Customer Reveal: Facebook and Optical Feels the Facebook Effect.)

Its revenues soared from $544 million in 2013 to $668 million last year, when it also swung to a net profit of $13.7 million from a loss of $32 million in 2013.

Transmode, meanwhile, made a net profit of SEK61.5 million ($7.08 million) in 2014 on revenues of SEK930 million ($107.09 million).

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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