26 March 2012

Oclaro and Opnext agree to merge

Optical communications and laser component, module and subsystem makers Oclaro Inc of San Jose, CA, USA and Opnext Inc of Fremont, CA, USA have entered into a definitive agreement to merge in an all-stock transaction (valued at $179m at current share prices). Opnext shareholders will receive 0.42 shares of Oclaro common stock for every share of Opnext common stock they own.

Table 1 (above): Oclaro's revenue for the last five quarters.

Table 2 (above): Opnext's revenue for the last five quarters.

Oclaro’s chairman & CEO Alain Couder will also be chairman & CEO of the combined firm. Upon closing, Opnext’s chairman & CEO Harry Bosco will join its board of directors. Opnext shareholders will own about 42% of the company and Oclaro 58% (giving it six out of the 10 board seats).

The merger brings together more than 30 years of combined telecom and datacom optical technology development, enabling the fourth (Oclaro) and fifth (Opnext) largest suppliers of optical components and subsystems to leapfrog JDSU to become the second largest supplier (with 2011 revenues of $417.2m and $327.5m, respectively, adding to $745m), behind Finisar. The companies says that the broad product portfolio, technology innovation, engineering resources, cost structure and strategic customer relationships of the combined firm are expected to expand growth opportunities and create long-term shareholder value.

Table 3 (above): Finisar's revenue for the last five quarters.

Data-intensive applications such as video and cloud computing, and the proliferation of mobile devices, are driving the need for increased performance and bandwidth throughout the core optical networks at the heart of the world’s Internet traffic, say the firms. These trends are also forcing enterprises and data centers to upgrade and deploy new data communications infrastructures.

As a result, traditionally separate telecom and datacom networks are converging, leveraging optical networking technologies from firms such as Opnext and Oclaro. It is reckoned that the combined company will be well positioned to capitalize on these trends to become the biggest supplier to the core optical networks, with a leadership position in the fastest-growing 40G and 100G segment, which is forecasted to increase at a compound annual growth rate (CAGR) of 42% through 2015. The broader product line resulting from the merger is expected to strengthen the combined company's position as a key supplier to existing and new customers.

“Our respective customers want to work with fewer, more strategic suppliers who can deliver the breadth of technologies they need,” says Couder. “The companies' complementary and vertically integrated product portfolios, scale, and heritage of technology innovation will put the merged company in that valued strategic partner and leadership role,” he reckons. “By doing so, and at the same time saving significant costs, we also expect to generate substantially more long-term value for shareholders than either company could deliver alone,” he adds.

In addition to the telecom and datacom markets, there is a large and growing opportunity for laser diodes in a range of high-growth industrial and consumer markets, the firms note. The combined company will be the largest supplier of laser diodes for industrial and consumer applications and, with a substantial portfolio of products and technologies, will be well positioned to accelerate innovation and inroads into these high-volume markets, it is reckoned.

The combined heritage of Oclaro (formerly Bookham) and Opnext (formerly the Fiber Optic Components business unit of Japan’s Hitachi Ltd, until September 2000) stems from some of the leading optical technology developers over more than 30 years, via mergers and acquisitions involving Nortel, Alcatel, Marconi, Corning and Avanex.

“Opnext and Oclaro share a rich history bringing to market some of the industry’s most advanced optical technology innovations over more than three decades,” says Bosco, who reckons that the merger will create a unique opportunity for customers, shareholders and employees of the merged firm to leverage this legacy of technology to lead the optical components and modules market and to achieve critical mass in the industrial and consumer laser diode segments.

Subject to customary closing conditions (including approval by the shareholders of both firms and the receipt of regulatory approvals in the USA), the transaction is expected to close within 3-6 months.

The combined firm is expected to achieve positive non-GAAP operating income in the first full quarter after the close of the merger, and annualized cost synergies of $35-45m within 18 months. Restructuring and system integration costs should total $20-30m.

See related items:

Opnext’s quarterly revenue falls 38% due to Thailand flooding

Oclaro’s quarterly revenue down 28% year-on-year

Oclaro’s quarterly revenue flat due to Asian telecom slowdown

Opnext’s revenue falls 7.6% as China OEMs start producing 40G modules internally

Opnext revenue hit by 40G DQPSK and 100G CFP module production constraints

Oclaro’s ramp of higher-margin products delayed by optical telecom inventory correction

Oclaro hit by Chinese telecom inventory correction

Opnext’s revenue down 1.8% after module assembly stoppage

Oclaro cuts quarterly revenue guidance by 8%

Bookham and Avanex merge into Oclaro

Tags: Oclaro Opnext

Visit: www.oclaro.com

Visit: www.opnext.com