Optical components

Will Avanex Hook Bookham?

Long-struggling optical components firms Avanex Corp. (Nasdaq: AVNX) and Bookham Inc. (Nasdaq: BKHM; London: BHM) could be merging, according to rumors rattling through Wall Street and the optical industry during the past week.

One theory says the deal is imminent, with Bookham CEO Georgio Anania having spent the last two weeks in the Bay Area to put the signatures on the contract.

Most sources say the idea isn't a bad one.

"If that's true, it would make some sense. It would be an opportunity to take some cost and capacity out of the industry," says Tim Savageaux, an analyst with Merriman Curhan Ford & Co.

Bookham officials say they won't comment on rumors. Avanex officials couldn't be reached for comment.

The deal would create a larger company -- an important factor, given the spate of big-name mergers such as the pairing of Alcatel (NYSE: ALA; Paris: CGEP:PA) and Lucent Technologies Inc. (NYSE: LU). As customers get fewer and bigger, they might favor larger and broader component suppliers, a possibility that's helping to drive mergers at firms such as JDSU (Nasdaq: JDSU; Toronto: JDU) and NeoPhotonics Corp. (NYSE: NPTN)

"Our customers have consolidated -- that's a key," says one components exec who requested anonymity. "Even our customers' customers are consolidating. Maybe companies could leapfrog each other by making some bolder moves."

Vague Avanex/Bookham rumors flicker through the industry from time to time. The trigger making this iteration real, sources say, might be Bookham's share price, which arguably is at discount levels compared with Avanex and JDSU. (See Bookham Bruised by Q1 and Infinera Boosts Avanex .)

While a potential deal might be considered a merger of equals, it seems Avanex would have to be the acquiring party. Bookham has the higher revenues, with a $225 million run rate compared with Avanex's $204 million, based on the September quarter. But Bookham's market capitalization is roughly $270 million as of yesterday, while Avanex is valued at $446 million.

As for a price, one source, stressing that this is just a guess, thinks Bookham wouldn't attract that much of a premium -- maybe 25 percent, which would put the price around $340 million.

Avanex and Bookham have struggled mightily since the bubble, with questions raised about each firm's stability. Early in 2005, neither company had the cash to last more than a few more quarters, and it's taken some creative financial wrangling to avoid the abyss. (See Bookham, Avanex Shore Up.)

One source believes a merger deal would include Avanex selling off its manufacturing facility in France, moving that capacity to the Shenzhen, China, site that Bookham has been building up.

That would ease the cost problems that have plagued the companies, as each inherited a bulky manufacturing infrastructure while attempting to become a more serious player in optics. Bookham acquired its facilities along with the components arm of Nortel Networks Ltd. in 2002, while Avanex's French fab was part of the Alcatel (NYSE: ALA; Paris: CGEP:PA) division it acquired in 2003.

Of course, Avanex has been an acquisition tease in the past. Recall the bubble-era tale of Avanex and Oplink Communications Inc. (Nasdaq: OPLK), a planned marriage that disintegrated after a shareholder revolt. (See Avanex and Oplink: Wedding's Off.)

— Craig Matsumoto, Senior Editor, Light Reading

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^Eagle^ 12/5/2012 | 3:16:41 PM
re: Will Avanex Hook Bookham? word in sili valley is that the deal is dead. Unable to find appropriate financing for the additional cash that would have been burned doing the integration of the two companies (cost to shut down plants, cost to terminate employees, etc.). Also heard that the amount of $$ demanded by some of the executives that would have been cut was too rich to finance.

of course the boards of both companies could put a deal back on the table and force the issue. however, rumor mill has it that the deal is dead.

Vent 12/5/2012 | 3:16:41 PM
re: Will Avanex Hook Bookham? On this board it was mentioned that the avanex Bookham merger was a 'done deal'
Now it's all gone quiet
Is it off ?? or just waiting until the results announcements later in month
They must saw something by then or not??????

Vent 12/5/2012 | 3:16:38 PM
re: Will Avanex Hook Bookham? Shame
So Giorgio was holding out for MORE cash to go
and not enough to shut available down one of the fabs.
Well we will wait for the next Qtr results to see how long Bookham will have left on it's own
possibile Avanex can pick up the interesting bits in a fire sale at the end of the year

twill009 12/5/2012 | 3:16:37 PM
re: Will Avanex Hook Bookham? Not such a "Done Deal" after all. Bad company. Bad management. Bad rumor.

Financially, Bookham is a nightmare. Never made a profit, and probably never will. Why would you be willing to buy it? The company has apparently been shopping itself for some time, but has yet to find anyone foolish enough to take the bait.

Goes to show how message boards -- even at a quality site like LR -- are not to be trusted.
DZED 12/5/2012 | 3:15:50 PM
re: Will Avanex Hook Bookham? G'Day Mates.

Has anyone noticed the entire Bookham exec team seem to be dumping their ill-gotten free stock just as quickly as they legally can?

In the last few months Anania has off-loaded 2130+2130+25219 shares, the other execs seem to be following pro-rata. I expect this is on the limit of their stock scheme.

As always, the SEC filings lift the lid.

With the stock at practically a one year low, whats going on guys?

So much for Bonex, at least Anania doesn't get to pocket the millions in severance he wrote into his contract.

With insolvency looking likely, and the possibility of an Enron style unravelling of the murky dealings and management team greed, the execs must by now be truly desperate for a sale to cover their tracks.

Shame, as there are clearly good engineering teams there delivering the goods despite the inept egos running the place.

Interesting days ahead.
DZED 12/5/2012 | 3:15:47 PM
re: Will Avanex Hook Bookham? "I may be being a bit thick here but why would the Senior Management be selling shares in the low 100's? It just doesn't seem worth the effort to get $1200.

Its called short-termism.
Better $1200 today - and watch the share price collapse when the market finds the execs are ditching their own stock - than $12,000 tomorrow.

This is the kind of strategy Anania employs which has wrecked Bookham.
Pete Baldwin 12/5/2012 | 3:34:36 AM
re: Will Avanex Hook Bookham? One curiousity inside this whole theory: Bookham just got done with the heavy lifting in moving manufacturing to Shenzhen.

They've got a couple flat quarters coming, yes, but assuming Anania is right in saying Bookham is about to turn the corner (and obviously some readers here have doubts) ... isn't this an odd time to sell? Wouldn't they be better off waiting for a higher valuation?
deauxfaux 12/5/2012 | 3:34:35 AM
re: Will Avanex Hook Bookham? The central premise in finance is that you always sell the most overvalued claim on cash flow. The proxy for an equity holder's claim on cash flow is net profit. So in effect (if BKHM is indeed about to be acquired) Georgio would be "shorting" his future earnings.

But after losing $1,000,000,000 and never making their first nickel of GAAP profit, this should not be surprising to anyone.

alcabash 12/5/2012 | 3:34:35 AM
re: Will Avanex Hook Bookham? are they really done with Shenzhen ? I thought that Bkhm still had a fair amount of products produced in UK.
Cathi48 12/5/2012 | 3:34:34 AM
re: Will Avanex Hook Bookham? deaufaux, what effect, if any, do you see this having on JDSU should this rumored merger take place?
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