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Bookham, Avanex Tie the Knot

Craig Matsumoto
1/27/2009

They've finally done it.

Long suffering Avanex Corp. (Nasdaq: AVNX) and Bookham Inc. (Nasdaq: BKHM; London: BHM) agreed today to merge, with Bookham shareholders to own 53.25 percent of the combined company.

The all-stock deal values Avanex at $35.4 million, or $2.17 per share -- a whopping 67 percent premium over today's closing of $1.30. Avanex stock was up 33 percent in after-hours trading, while Bookham shares were down $0.03 (7%) to $0.37.

The pairing has been discussed for years among industry watchers, and it nearly happened in 2006. Rumors of a possible deal had resurfaced last year. (See Will Avanex Hook Bookham? and Avanex/Bookham Redux.)

The company will take a new name, to be announced after the deal's closing, which is expected in three to six months. Bookham CEO Alain Couder will remain CEO.

In 2003, both companies had acquired optical components divisions from larger players, hoping to challenge JDSU (Nasdaq: JDSU; Toronto: JDU) for a lead in the market. But difficult conditions persisted for this sector of the industry, and each company's fight to return to profitability was tougher than expected.

The merger of Finisar Corp. (Nasdaq: FNSR) and Optium last year created a more clear competitor to JDSU and opened the question of how Avanex and Bookham would cope, given that they were clearly pushed out of Tier 1 status. The Opnext Inc. (Nasdaq: OPXT) acquisition of StrataLight, completed this month, created another player larger than Bookham or Avanex.

By merging, the two smaller companies put themselves back on Tier 1 footing.

Among the benefits is the combined company's ability to "spend more on R&D than perhaps any other competitor," Couder said during today's Bookham earnings call -- noting that it would have been difficult for either company alone to keep up the R&D pace.

A merger of equals is never easy, Couder noted, but he expressed confidence in this deal. "We have been very careful in making sure that we could succeed, and the chemistry between the two management teams we have seen so far has been outstanding," he said.

Avanex CEO Giovanni Barbarossa further noted that a lack of product overlap would serve the companies well after the merger. During the conference call, he also pointed out a difference in CEO accents -- Barbarossa is clearly Italian, while Couder is very much French.

The companies expect the merger to contribute to profits within one quarter. They're going to have some juggling to do in terms of business processes: Bookham put a lot of money into its manufacturing in Shenzhen, China, while Avanex has chosen to outsource its manufacturing, largely to Fabrinet Co. Ltd. (NYSE:FN)

— Craig Matsumoto, West Coast Editor, Light Reading

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deauxfaux
deauxfaux
12/5/2012 | 4:13:12 PM
re: Bookham, Avanex Tie the Knot
The logic is that you combine a company that burned $1,100,000,000 with a company that burned $710,000,000....and tell the investors "don't worry...the future will be brighter!"

If the future is brighter, it will only be from the increased height of the perpetual flames at BookAnex that lick wheelbarrows full of $100 bills, salivating at the prospect of another PIPE.

The new logo-wear should be made of Nomex



Pete Baldwin
Pete Baldwin
12/5/2012 | 4:13:11 PM
re: Bookham, Avanex Tie the Knot
Funny post. yes, there's totally a chance this will crash and burn... but they had to give it a shot, I think. At this point, I don't see many other options for them - i doubt either side would survive on its own, frankly.

One odd thing about the conference call: They seem to think the trough for their revenues will be in March, with recovery coming in four quarters. Now, part of that is because they've hit inventory issues at some customers, and those should be done with by June (so the theory goes). Doesn't that seem too optimistic?
Vent
Vent
12/5/2012 | 4:13:10 PM
re: Bookham, Avanex Tie the Knot
I still don+át see this deal changing things. Where is the cash, both companies are running out of money. Even if they say there is not much overlap there will be restructuring, amplifiers for example. Possibile they can sell the Shenzen manufacturing unit. I don+át see where the refinancing is coming from for the new company to survive. I expected if someone would buy either of these two they would have had some cash available to restructure and survive the downturn. Posssibly this is just a prelude to them both being bought !!!
deauxfaux
deauxfaux
12/5/2012 | 4:13:07 PM
re: Bookham, Avanex Tie the Knot
Craig: "there's totally a chance this will crash and burn... but they had to give it a shot, I think."

Deaux: Yes, there is a chance that this could crash and burn...virtually 100%. Even VCs take away the keys when their teenages sons wreck a 2 or 3 of the family Teslas, Porsche's or Ferrari's

Craig: "I doubt either side would survive on its own, frankly."

Deaux: Then where is the logic in creating a more complex entity to manage and finance?

Craig: "They seem to think the trough for their revenues will be in March, with recovery coming in four quarters."

Deaux: Sounds like the guys that are preparing their forecasts were recruited from IndyMac Bank, Countrywide or some other "leader" in the mortgage industry. Seriously, they are out of their minds if they think that they have clarity on any of this. You're just seeing the beginning of all of the problems in this business: the truth is that expenditures on bandwidth expansion are discretionary.

Craig: "Doesn't that seem too optimistic?"

Deaux: After seeing the various management perps burn through a combined $1,800,000,000 over the years, I would say that yes, they've been a wee bit too optimistic.
Pete Baldwin
Pete Baldwin
12/5/2012 | 4:13:06 PM
re: Bookham, Avanex Tie the Knot
Sailboat -- The top-layer management is basically Bookham:
http://www.lightreading.com/bl...

That's from Page 18 of the .pdf slides you can download with Bookham's earnings call (http://www.irpage.net/bkhm/ind....

Mark Weinswig is sticking around in "Business Development and Planning," presumably as VP or whatever title he currently holds.

>>> so, the question is, how do we know that these particular guys spending more on R&D will be SMART spending on R&D and not more wasted energy? <<<

I think I still like the idea of the merger, but I definitely hear you here. How about this: At least we know they won't spend the money on bringing back the ASOC...
^Eagle^
^Eagle^
12/5/2012 | 4:13:06 PM
re: Bookham, Avanex Tie the Knot
No mention of management changes at either company......hmmmm, and we expect different results? who goes, who stays besides Barbarossa and Couder? which CFO stays? Which COO stays? Which sales and marketing team? What other divisions will close or be downsized in this? No clarity on the manufacturing strategy.... this is telling. In a merger that has clearly been worked on for many months, to not have this figured out (Shenzhen or Thailand or???) and be able to announce it, is a clear indicator to me that this merger was done with only shallow thinking. We have to get bigger or die. Well, bigger is not always better. PROFITABLE is better. You can be profitable as a small player, as a medium sized player and as a large player.

What I am looking for is management that knows how to make a profit. Not management that thinks the only solution is to get bigger. There are many indications that bigger is not always better or more profitable.. often simply more screwed up.

This merger could be great.... but I think the BOD's of both companies will have to do some SERIOUS cutting at the executive level and put in a leader and competent management.... (what is happening with Wineswig at Avanex for instance... the guy who came back from Coherent to help turn the ship around. Wineswig was one of the architects of the buy out of the Alcatel Opto and Pirelli Opto groups back in the day, which arguably is the only thing that allowed Avanex to survive this long. I think otherwise Avanex would have long ago folded.

one last comment, I laughed so hard that I fell off my chair when Couder said the combined company could and would spend more on research than anyone else in the industry! Well, seems to me that Bookham has already owned that distinction.... a billion down the hole in cash largely spent on creating / researching new products.... Not counting the hundreds of millions that Marconi and Nortel poured in prior to the acquisitions. Remember, that virtually all the products they sell are from the IP of Nortel and some % from Marconi... none of the stuff the original Bookham spent research dollars on are what they actually sell.

so, the question is, how do we know that these particular guys spending more on R&D will be SMART spending on R&D and not more wasted energy?

sailboat
bollocks187
bollocks187
12/5/2012 | 4:13:01 PM
re: Bookham, Avanex Tie the Knot
BOTH companies - if you have ever dealt with either company you get a very bad 1st, 2nd ...nth impression - it never feels good.

Amazing con that has being going on for a very long time.
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