Bookham, Avanex Tie the Knot
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