Alcatel sells Optronics division to Avanex in USD63.5 million deal

May 13, 2003
13 May 2003 Paris Lightwave Europe--Alcatel announced today that it has entered into a binding agreement to divest its optical components business to Avanex in a stock for stock transaction.

13 May 2003 Paris--Alcatel announced today that it has entered into a binding agreement to divest its optical components business to Avanex in a stock for stock transaction.

This business will include key operations based in Nozay, France and Livingston, UK. As part of this transaction, Avanex is also acquiring certain assets of Corning's photonics activities. Alcatel will hold 28% of the combined entity.

Christian Reinaudo, Executive VP Alcatel, said, "With this agreement, we are contributing Alcatel Optronics' outstanding technical expertise to an enlarged and credible partner that will support our optical networking activities, which are key to Alcatel.

"We have secured the future for Alcatel Optronics, in line with our strategy announced at the beginning of the year to find an alternative solution for our optical components business.

"Avanex will hold a leadership position, providing leading edge technologies to a broad customer base, and will be able to achieve synergies and economies of scale that will allow it to remain competitive in today's landscape."

The combined transaction is valued at approximately USD 63.5 million based on Avanex's 9 May 2003 closing price of USD 1.12 per share. Alcatel will retain 28% of Avanex post issuance share capital. Alcatel Optronics will bring a cash contribution of approximately USD110 million, the majority of which will pertain to restructuring, to be finalised at closing.

Avanex and Alcatel have also entered into a supply agreement wherein Avanex will provide solutions for Alcatel's optical networking products over a three-year period. This transaction, which will be presented to Alcatel employees' representatives, is subject to the approval of Avanex shareholders and to customary regulatory approvals and is expected to close by 30 September 2003.

The acquisitions by Avanex will combine the complementary optical business capabilities of three of the industry's leading providers of optical components, modules and subsystems for fibre-optic transmission networks, and enable Avanex to offer one of the broadest lines of advanced optical technologies and intelligent photonic solutions to enhance the speed and capacity of optical communications systems.

After the acquisitions, Avanex will offer products that address optical wavelength generation and modulation, multiplexing and demultiplexing, signal amplification, wavelength routing and dispersion compensation. Avanex estimates that after the acquisitions, it will have over USD250 million in cash and 1,600 employees on the closing date.

Walter Alessandrini, Chairman, President and Chief Executive Officer of Avanex, noted today that "Our acquisition of these two complementary businesses is a logical, timely and appropriate step for success in today's market environment.

"These acquisitions position Avanex as an industry leader with a broad customer base, full suite of industry-leading products, competitive cost structure, strong manufacturing expertise and worldwide R&D capabilities. In addition, there is significant potential for synergies arising from these transactions including immediate opportunities for cost reductions and incremental sales."

"Avanex's strategy is to be the leading supplier of optical solutions. Our customers want suppliers who can deliver end-to-end solutions that are cost-effective and of the highest quality. After the acquisitions of Alcatel's optical components division and certain optical component business lines from Corning, Avanex will have the scale and resources to effectively supply our customers with their product needs."

Transaction details
- Alcatel and Corning will receive as consideration 28% and 17% respectively of Avanex's outstanding common stock of the post-transaction company, which currently translates into approximately 35.2 and 21.4 million shares. Following the transaction, Alcatel and Corning have agreed to certain restrictions on the voting and transfer of their Avanex shares.
- Avanex will acquire all outstanding equity of Alcatel's optical components division. This business will include key operations located in France and the United Kingdom.
- Alcatel is expected to contribute over $110 million in cash, to be finalized at closing.
- Avanex and Alcatel will enter into a supply agreement whereby Avanex will supply solutions for Alcatel's optical networking products over a three-year period.
- Assets to be purchased from Corning include optical amplifier, dispersion compensation, and micro optics operations located in New York and Corning modulator operations located in Italy.
- Corning is expected to contribute over USD20 million in cash, to be finalized at closing.
- Alcatel and Corning will assign approximately 1,400 patents to Avanex and additionally license several thousand patents to Avanex as part of the transaction.
- At closing, Dr. Joseph A. Miller Jr., senior vice president and chief technology officer of Corning, is expected to join the Avanex Board of Directors.

Alcatel's optical component division had sales of EUR 7.3 million for its March 2003 quarter. The division's products include lasers, photodetectors, optical amplifiers, transponders and key passive devices such as arrayed waveguide gratings and Fiber Bragg grating filters. Alcatel's optical component division had 950 employees as of 31 March 2003.

The business lines to be acquired from Corning had sales of approximately USD11 million for the March 2003 quarter. Key products from these business lines include optical amplifiers, dispersion compensation modules, lithium niobate and electro-absorptive modulators, and micro optics products. These business lines had 490 employees as of 31 March 2003.

The companies anticipate closing the transaction by the end of Avanex's first fiscal quarter, ending September 30, 2003, subject to customary closing conditions, including the approval of the stockholders of Avanex and required regulatory approvals. The Boards of Directors of all three companies have approved the transaction. Citigroup Global Markets Inc. is acting as exclusive financial advisers to Avanex with respect to this transaction.

About Avanex
Avanex designs, manufactures and markets photonic processors for the communications industry. Avanex's photonic processors offer communications service providers and optical systems manufacturers greater levels of performance and miniaturization, reduced complexity and increased cost- effectiveness as compared to current alternatives.