October 7, 2002--Bookham Technology, an Oxfordshire, UK based provider of integrated optical components and subsystems announced today that it has entered into an agreement to acquire the optical transmitter, receiver, and amplifier businesses of Nortel Networks. As part of the combination, Nortel Networks Limited, a subsidiary of Nortel, has also agreed to enter into a $120 million (U.S.) supply agreement with Bookham. The agreement is subject to approval by Bookham's shareholders at an "extraordinary general meeting" to be held on November 5, 2002.
The Nortel optical transmitter, receiver, and amplifier businesses are located principally in Paignton, UK, in Ottawa, Canada, and in Zurich, Switzerland. Substantially, all of the employees will be joining Bookham as part of the combination.
Bookham believes that the economies of scale generated by the combination will facilitate increased cost efficiencies. Furthermore, as part of an independent entity, there will be greater opportunity for the components generated from the optical transmitter and receiver and optical amplifier businesses to be sold to other systems manufacturers. Finally, by integrating Nortel's products with Bookham's own active and passive solutions, Bookham will take a significant step towards becoming a worldwide provider of optical components, modules, and subsystems and thus towards meeting its customers' desire to have fewer suppliers offering a broader range of products.
Under the terms of the agreement, Nortel will receive 61,000,000 shares of Bookham, which immediately following completion of the combination would represent approximately 29.78% of the issued share capital of the company; warrants over 9,000,000 shares of Bookham; and 3-5 year loan notes to the value of $50 million (U.S.). Bookham will also pay on completion $10 million (U.S.) to Nortel for restructuring expenses incurred in connection with the combination.
Nortel Networks Limited has agreed to purchase a minimum of $120 million (U.S.) of optical components and related services from Bookham over a period of six quarters from completion of the combination. In addition, over the three years following completion, Nortel Networks Limited has agreed to purchase from Bookham agreed percentages on a product-by-product basis of its total requirements for the optical components products that are currently being supplied to Nortel by the optical transmitter and receiver and optical amplifier businesses, subject to certain performance criteria.
Based on the mid-market closing price of Bookham's shares on October 4, 2002, the deal is valued at approximately $111.6 million (U.S.), assuming full exercise of the warrants and including the payment on completion of $10 million (U.S.) restructuring expenses incurred by Nortel in connection with the combination but excluding the interest payable on the loan notes.
Nortel has agreed, for so long as it or any members of the Nortel Group of companies, holds 5% or more of the issued share capital of Bookham, the holders of such ordinary shares will abstain, except in limited circumstances, from exercising the voting rights attached to the ordinary shares to ensure that Bookham is capable of carrying on its business independently of Nortel. In addition, Nortel will not have any board representation following the combination.
Giorgio Anania, president and chief executive officer of Bookham Technology plc, commented, "We believe that the optical communications market has good long-term potential, though market conditions are currently depressed and are likely to remain depressed for the next several quarters. In this environment, having scale and technology is critical to achieving profitability in the optical components sector, as it is characterised by high fixed manufacturing costs, such as opto-electronic semiconductor fabrication facilities, and by heavy research and development investment. In particular in this environment, our customers are seeking relationships with fewer optical components suppliers who have a lower-cost position, a broader product portfolio and who can deliver next generation technologies.
"Operationally, this combination is particularly beneficial. A significant portion of the entity we are combining with is located in the UK, in close proximity to our headquarters and manufacturing operations. Nortel has always been one of our largest customers, so the working relationships are already excellent. Through the acquisition and ongoing integration of the optical components business of Marconi in February this year, we have demonstrated that we are able to integrate two substantial businesses quickly and efficiently. We believe this will also be the case in this combination."
Morgan Stanley is acting for Bookham as financial adviser and sponsor in connection with the deal.