Lucent Technologies' Microelectronics Group (Murray Hill, NJ) is buttressing its optical networking business by agreeing to buy Ortel Corp. (Alhambra, CA), a developer of optoelectronic components for cable TV networks, for $2.95 billion in stock. The deal will speed the transition of cable networks "to a two-way, fully interactive communications medium," claims John Dickson, executive vice president and chief executive officer of the Microelectronics and Communications Technologies unit. The acquisition provides Lucent with a foot in the door to the cable TV market as well as additional component capability for the telecommunications market.
Under the terms of the agreement between Lucent and Ortel, each share of Ortel will be converted into 3.135 shares of Lucent. Based on Lucent's closing stock price of $57 last Friday, the acquisition would be valued at approximately $2.95 billion, or $177.125 per Ortel share. Lucent expects the acquisition to be completed by the end of June.
"The match on paper looks perfect," says Peter Andrew, technology analyst at A.G. Edwards & Sons. "What Ortel doesn't have in terms of sales infrastructure, manufacturing, packaging, etc., Lucent does very well. Plus, Ortel brings along a very attractive product line."
Stephen Rizzone, Ortel's president, chief executive officer and chairman of the board, says that Lucent's manufacturing expertise will help to significantly increase productivity and better meet increasing customer demand. "Our current processes are manual-intensive, and we're looking to add the Lucent automated manufacturing processes as quickly as possible to our product development as well as our production capabilities," Rizzone asserts. "This will help us to meet the demand for our products and at the same time positively impact our cost and margins going forward."
Ortel designs, manufactures, and supplies advanced optoelectronics, including lasers and photo diodes. "This acquisition is aimed more at building out Lucent's microelectronics portfolio than at filling a hole in any of its other equipment sectors," says Andrew. "There are rumors-and I want to state that these are strictly rumors-that Lucent might spin off the microelectronics division from the company in the future." The analyst believes that this would be a positive move for Lucent, allowing the microelectronics division to showcase some "true hidden value" within the unit. At a press conference, a Lucent spokesman said the company would not comment on "speculation" and asserted that the company's major aim is to strengthen Lucent as a whole and to raise shareholder values.
Andrew also points out that Ortel was attractive because of its 10% stake in privately held Tellium Inc. (Oceanport, NJ), a maker of optical networking switches. With the completion of the acquisition, Lucent will become the second largest shareholder in the smaller company, which is set to go public this year.
Ortel will become part of Lucent's optoelectronics component division, and Ortel's Rizzone will report into optoelectronics president Dan DiLeo. Ortel's 550 employees will remain at their current locations.