JDS Uniphase strikes again with $15-billion bid for E-tek

JDS Uniphase (San Jose, CA, and Nepean, ON, Canada) has had an eventful fall and winter implementing its growth-through-acquisition strategy. The company will be even busier, following this week's announcement that it will acquire E-tek Dynamics Inc. (San Jose, CA) in a stock deal valued at roughly $15 billion dollars. The combined companies hope to better meet customer demand for optical communications equipment.

The current agreement calls for the exchange of 1.1 shares of JDS Uniphase common stock for each common share of E-tek. Although the offer valuing E-tek at $211.41 per share seemed high compared to the company's closing price of $135.875 last Friday, the stock has skyrocketed to trade above the offering price at $231 two days after the announcement. The value of JDS stock has also risen, climbing from Friday's close of $192 to a high of $236.875. Jim Parmelee, telecom equipment analyst with Credit Suisse First Boston, believes the price is justified: "Clearly, it's at the upper end of what we would typically see...At the same time, there is a scarcity value here; there aren't many assets like E-tek out there that can give you immediate capability in the manufacturing area, which represents such an advantage in this market."

Together, the companies are expected to bring greater volume and a broader range of products to customers faster, which is an important selling point, given the overwhelming demand for bandwidth among service providers. Analyst Parmelee notes, "JDS Uniphase already is in a very strong strategic position and boasts a broader array of products, customers, and capability versus its key competitors, so this is just another tactical acquisition to enhance that."

In addition to the merger, the companies also announced the signing of a mutual supply agreement that will immediately increase the supply of certain products to customers. Jozef Straus, JDS Uniphase co-chairman and president contends, "We strongly believe that our combined manufacturing capacity and product innovation capability will strengthen our ability to meet and exceed our customer expectations." Chairman and president of E-tek Michael Fitzpatrick agrees, adding, "By joining together, we believe we will eliminate inefficiencies in the supply chain, allowing us to deliver more products to our customers."

The purchase of E-tek is part of a strategic plan JDS Uniphase has implemented to aggressively grow, according to senior vice president and chief financial officer Tony Muller. "The plan is a four-phase strategy," he explains. "The first two were to create a broad portfolio of components for fiber optics, and to integrate those products into multi-component modules. We are well along in the first two phases. We're now concentrating on the third, which is capacity expansion to serve a rapidly growing market." The company has had a busy last three months, finalizing its acquisition of EPITAXX and making merger agreements with Optical Coating Laboratory Inc., component maker Ramar Corp., fused-components manufacturer SIFAM Ltd., and Oprel Technologies Inc., a developer of optical amplifiers, test equipment, and optoelectronic packaging.

For now, JDS Uniphase is certainly reaping the financial rewards of its plan. At the beginning of this month, the company's board of directors approved a two-for-one stock split of its common shares. Stockholder approval of an increase in authorized capital from 600 million to 3 billion shares will be sought at a special meeting of the JDS stockholders, which has been scheduled for February 25. Subject to approval, the record date for the stock split will be March 1, with a payment date of March 10.