Finisar creates components monster with Infineon acquisition
April 29, 2004 Munich, Germany and Sunnyvale, CA -- Finisar Corp. has agreed to acquire the Munich-based Fiber Optics Business Unit of Infineon Technologies AG for 135 million shares of Finisar common stock. The deal creates an entity that would leapfrog such powerhouses as Agilent and JDS Uniphase to create a new optical component market share leader, reports Lightwave Editorial Director Stephen Hardy.
April 29, 2004 Munich, Germany and Sunnyvale, CA -- Finisar Corp. has agreed to acquire the Munich-based Fiber Optics Business Unit of Infineon Technologies AG for 135 million shares of Finisar common stock. The deal creates an entity that would leapfrog such powerhouses as Agilent and JDS Uniphase to create a new optical component market share leader.
The acquisition transaction implies a valuation of $263 million based on the closing share price as of April 28, 2004. Following the transaction, Infineon will hold a 38 percent equity interest in Finisar. Jerry Rawls, Finisar president and CEO, said during an analyst call Thursday he expects the transaction will close during the third quarter of this year.
The acquisition covers the transfer of Infineon's fiber-optic development, manufacturing, and certain marketing activities and approximately 1,200 employees. The Infineon Fiber Optics Business Unit develops, manufactures, and markets a broad range of optical datacom and telecom modules, BIDI components that allow bi-directional transmission on a single fiber for fiber-to-the-home applications (FTTH), and plastic optical fiber (POF) components that are used in automotive applications for media and safety systems.
Rawls in particular highlighted the FTTH opportunities offered by Infineon's BIDI products, as well as the automotive opportunities from the POF products. He also mentioned Infineon's PAROLI parallel optical transceiver, which Rawls said was being "redesigned" to make it more cost-competitive with copper alternatives.
Finisar expects to realize "significant synergies" within the first year following closing of the transaction. These "synergies" include the reduction of corporate overhead from the new assets (by getting it out from under Infineon), improved efficiency, and revenue from new products, according to information provided during the analyst call.
In the second quarter ended March 31, 2004, Infineon's Fiber Optics Business Unit posted revenues of approximately $32 million. Combined with Finisar's revenue guidance of $55 million to $60 million in its fourth quarter ending April 30, 2004, the combination would create the largest pure-play optical components company in the world, Rawls said. Using market share information provided by RHK, Rawls said the combined entity will enjoy nearly 17 percent of the optical component market, based on adding Infineon's current 8.1 percent with Finisar's 8.4 percent. Agilent currently leads the market with 15.1 percent, in RHK's estimation.
"Leveraging the unique optical capabilities of both companies, this combination will be an important step in the ongoing consolidation of the fiber optic market," said Thomas Seifert, CEO of Infineon's Wireline Communications Business Group. "In Finisar, we have found an excellent strategic partner with a mutual interest in securing the future of the Fiber Optics Business unit. As one of the largest pure-play optical components companies, the combined forces will be able to provide more flexibility, broader product portfolio and cost efficiency to meet our customer requirements."
Seifert noted during the call that Infineon entertained several offers for its fiber-optics business. However, he declined to provide details of these offers.
"This acquisition will add important new product and technology platforms which should strengthen our position in our core markets as well as help us to diversify our revenue base in terms of end markets, customers and distribution channels," said Rawls in a prepared press statement. "About 40 percent of Infineon's business is in markets where we currently don't compete, including the automotive industry and emerging fiber-to-the-home opportunity."
Assets to be transferred in the transaction include Infineon Fiber Optics GmbH, with its locations in Berlin (development, manufacturing and marketing), Munich (development and manufacturing) and Regensburg (development and marketing). In addition the manufacturing facilities in Trutnov (Czech Republic), development and marketing activities in Longmont and San Jose (USA), and Infineon's stake in the ParoLink joint venture with UEC in Taiwan will be transferred.
Rawls pointed out during the call that the combined entity will have four fabs (including the Taiwan joint venture), and that VCSELs are produced in several of them. (Finisar recently acquired Honeywell's VCSEL business as well.) He noted that there was "a lot of opportunity of achieving economics."
The transaction is subject to approval by Finisar's shareholders, applicable regulatory approvals and other customary closing conditions. Rawls as well as Frank Levinson, chairman and CTO of Finisar, who own a combined 15 percent of the shares, entered into a voting right agreement with Infineon that they will vote their shares in favor of the transaction.
At closing, Thomas Seifert, CEO of Infineon's Wireline Communications Business Group, is expected to join the Finisar Board of Directors. Infineon is expected to continue to be a strategic supplier of IC chips to the combined entity.
Deutsche Bank Securities acted as financial advisor to Finisar.
-- S. Hardy