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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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Vent 12/5/2012 | 3:34:33 AM
re: Will Avanex Hook Bookham? This goes back to the original idea, Georgio just missed out when Alcatel optronics sold to Avanex. The intention was to reduce cost by having just one fab.Maybe this will finally come true
However I can't see this happening unless there is also some extra cash from somewhere to cover the further restructuring costs of closing one of the fabs (Caswell or Nozay)and one of the package design centres (whats left of paignton or Nozay) The amplifier design would all be in NY state. The one possibility I would see for more cash is the sell off of the bookhams china manufacturing plant to an OEM. Avanex already do their manufacturing this way

Venting
Riverhigh 12/5/2012 | 3:34:33 AM
re: Will Avanex Hook Bookham? Don't see either of them surviving on a stand alone basis with $50-60 in revenues per quarter. If they are able to squeeze out the costs on consolidation they may have a better chance of surviving. Consolidation is good for JDSU. Good for the industry.
whyiswhy 12/5/2012 | 3:34:33 AM
re: Will Avanex Hook Bookham? Geo or Jo...who's the boss?

-Why
bluehawkfly 12/5/2012 | 3:34:32 AM
re: Will Avanex Hook Bookham? Who can tell the change of situation if/after the merging?
DZED 12/5/2012 | 3:34:32 AM
re: Will Avanex Hook Bookham? More likely:

Anania can finally see the light at the end of the tunnel. Cash run out, no more money to be made from share issues, no prospect of fat bonuses, free gifts of cash to himself etc.

The only way of squeezing more lolly from the dry lemon which is Bookham is written into his severance terms.

GA will be out. The only question will be how many additional million dollars he can wring from Avanex to go quietly.

Another thought, wouldn't it be easier for Avanex and JDSU to sit back and watch Bookham perish?
crowther 12/5/2012 | 3:34:32 AM
re: Will Avanex Hook Bookham? Timing could finally be right for this long needed merger. With production in Shenzhen, and Paignton sold the restructuring veil will soon be lifting from the BKHM accounts - and it still ain't pretty.
fbgboy 12/5/2012 | 3:34:30 AM
re: Will Avanex Hook Bookham? Nice to see the questions asked touching on JDS. As many people are aware many vendors sold similar products to all of these incarnations JDS, Nortel, Lasertron etc and made losts of money (heh-heh). There are still sales to the current pick a name now companies. China factories could quickly go Flextronics style and take chunk of manufaxturing jobs with them. (Yes I know flextronics is here also) At the end of the day all it is about is Do I have the sale? and/or how many employees do we have to let go increase profit and where should we sent the work to? Thank you Flextronics for the perfect american business model, ouch, but who cares... show me the money...
deauxfaux 12/5/2012 | 3:34:30 AM
re: Will Avanex Hook Bookham? Generally, not much. Here's why

BK/NX has no instrument business to speak of, so JDSU's instrument (Acterna) business certainly wouldn't be affected, and that is about half of revenue last time I looked.

JDSU's former OCLI business also has no analog inside BK/NX and wouldn't be affected. I can't remember how big this is: 20%???

JDSU is really trying to de-emphasize commmodity components and avoid going head to head against the chinese. But BK/NX doesn't have any special cost leadership there...so that doesn't matter either.

So for the 20-30% of JDSU's business in long haul modules that competes with these guys, what would be the impact? Again, not much as BKHM and AVNX both get a lot of their business from their former parents NT and ALA. In the places where they could consolidate, they may gain some cost benefits, but customers don't like putting all of their eggs in one basket, so when mergers occur, the big guys need to maintain their leverage by designing in competitors.

BKHM & AVNX merging won't even make a dent in the consolidation necessary to fundamentally change this business.
^Eagle^ 12/5/2012 | 3:34:30 AM
re: Will Avanex Hook Bookham? Word I hear is that it is a done deal. No, I do NOT work for either, have NO stock or equity at either, and am not an insider for the deal.

I hear from fairly reliable source that deal is done. Details being worked on re which staff get wacked and which plants closed before it is announced and causes panic in the employee base of both companies.

Don't know when it will be formally announced an don't know terms of deal.

Should be an interesting couple of weeks!

sailboat
twill009 12/5/2012 | 3:34:30 AM
re: Will Avanex Hook Bookham? There is no reason for there to be a premium for Bookham -- do not be surprised if it turns out to be a take-under.
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