Lumentum Holdings Inc. and Coherent, Inc. announced this morning that they’ve reached a definitive agreement that will see the former acquire the latter for $5.7 billion in cash and stock. The companies expect the deal to close in the second half of this year, subject to approval by Lumentum's and Coherent's stockholders, receipt of regulatory approvals, and other customary closing conditions. If consummated, the merger would further expand Lumentum’s reach into laser and photonics markets beyond optical communications.
The proposed purchase calls for Coherent stockholders to receive $100.00 per share in cash and 1.1851 shares of Lumentum common stock for each Coherent share they possess. When completed, the terms would lead to Coherent stockholders owning approximately 27% of the combined company.
The merger would significantly expand Lumentum’s operations from the company’s current focus on telecom, datacom, and 3D sensing products, the last of which has been touted by analysts and the company’s primary growth engine. Coherent provides photonics and lasers offerings for such markets as microelectronics, precision manufacturing, instrumentation, and aerospace and defense. Through a combination of existing products and the results of combined R&D, Lumentum and Coherent believe the merged company will be able to play in 5G, advanced bioinstrumentation, advanced microelectronics, and consumer electronic devices, flat panel and OLED displays, communications equipment, electric and autonomous vehicles, and energy storage.
"Today's announcement is an important advancement of Lumentum's strategy," said Alan Lowe, Lumentum’s president and CEO. "In our five years as a standalone public company, we have focused on developing the most innovative products and technology in our industry and partnering with market leading customers to help them compete and win in their markets. As we look ahead, we are thrilled to join forces with Coherent to create one of the world's largest and most diverse photonics technology companies with leading positions in the growing market for photonics. Coherent brings one of the most recognizable and respected brands in the photonics industry and a very talented and innovative team. By increasing our scale, expanding our portfolio, and bolstering our R&D capabilities at a time when global markets are increasingly relying on photonics products and technologies, we are confident in our combined ability to pursue exciting new growth opportunities.”
"We are excited about the combination of Lumentum and Coherent, two iconic brands in their respective photonics markets. We anticipate the combined complementary product portfolio, breadth of customer application knowledge, and R&D capabilities, all based on photonics, will accelerate innovation and adoption of photonics across the many markets that we serve," added Andy Mattes, Lowe’s counterpart at Coherent. "We are excited to bring Coherent's strength in OLED display manufacturing, semiconductor wafer inspection and life science instrumentation to Lumentum's portfolio, to name but a few of the key applications we serve, and believe Lumentum's expertise and scale in world class photonics components and systems will accelerate Coherent's vertical integration and addressable market expansion in several high growth areas, such as directed energy in defense and precision battery welding in automotive."
From the financial perspective, the companies expect the combination to create more than $150 million in annual run-rate synergies within 24 months after the close. The deal also is expected to be accretive to the combined company's non-GAAP earnings per share during the first full year after close as well. A solid balance sheet and strong operating cash flows will enable “substantial financial flexibility to pursue continued growth initiatives,” the companies add.
Lumentum plans to finance the cash for the deal through a combination of cash on hand from the combined company's balance sheet and $2.1 billion in new debt financing from a fully committed Term Loan B. Two members of the Coherent board will be appointed to the Lumentum board, which will expand to nine directors at the closing of the transaction.
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