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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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realoptics 12/5/2012 | 3:34:19 AM
re: Will Avanex Hook Bookham? No choice that they have to merge!

If they don't merge, each of them may take 3-4 quarters to die, separatedly and almost die in the same time and same process?

If they merge, and get rid of half of the combined poeple, the new entity either die in 6-8 quarters, or catch up become profitable in those 6-8 quarters? So in theory it is to save cost and combine the advantages, in practice, there would be a lot of headaches, as the last two weeks, you could assume all the employees at both companies are very inquisitive about thier future, nobody is bothering to carry out jobs at hand.
FunkyMunky 12/5/2012 | 3:32:24 AM
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.

FM
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