Koch to buy Oplink, pair it with Molex, as trade activity raises eyebrows

Koch Industries, Inc. has reached an agreement through which its Koch Optics Inc. wholly owned subsidiary will acquire optical module and subsystems vendor Oplink Communications, Inc. (NASDAQ:OPLK) for $445 million. Meanwhile, reports have surfaced of unusual trading in Oplink shares before the acquisition was announced, leading to questions about potential insider trading.

Koch Industries, Inc. has reached an agreement through which its Koch Optics Inc. wholly owned subsidiary will acquire optical module and subsystems vendor Oplink Communications, Inc. (NASDAQ:OPLK) for $445 million. Meanwhile, reports have surfaced of unusual trading in Oplink shares before the acquisition was announced, leading to questions about potential insider trading.

Koch says it will offer $24.25 per share for all of Oplink's outstanding shares. The figure represents a 26% premium on the average closing price for the 30 days prior to the acquisition announcement and a 14% premium on the closing price of November 18, 2014.

Assuming the deal goes through – it is subject to the usual closing conditions, including antitrust clearance but not financing conditions – Koch's new assets will be managed by Molex, the optical technology company Koch bought last fall (see "Molex to go private upon acquisition by Koch Industries").

"Oplink will significantly expand Molex's fiber-optic capabilities for technology development and new product innovation," said Tim Ruff, Molex's senior vice president, business development and corporate strategy. "This is a great example of how we are growing our capabilities in our target markets by combining Molex's global presence and technological leadership with key industry leaders to provide customers with innovative solutions."

Oplink offers optical transceivers, mux/demux and interleaver platforms, coupling and splitting products, optical amplifiers, interconnect, and other products for fiber-optic networks (see, for example, "Oplink to unveil metro 100G CFP optical transceiver" and "Oplink closes OCP acquisition"). It reported revenues of $57.1 million in the first fiscal quarter of 2015, ended September 28, 2014. It reported revenue of $204.8 million for fiscal 2014, with a GAAP net loss of $1.2 million, or $0.06 per diluted share.

The company this past July announced it was reviewing strategic alternatives for its Oplink Connect business. Company management also came under fire from dissident investors Engaged Capital LLC and Voce Capital Management LLC in September; the investors sought to add executives from Engaged and Voce to Oplink's board of directors.

While the proposed sale may put that controversy to rest, another could be on the horizon. Reuters reported today what it called "well-timed bets in the options market" on Oplink shares in the days leading up to the sale announcement.

The company's shares usually see less than 30 contracts per day on the options market, according to Reuters reporter Saquib Iqbal Ahmed. However, contract activity picked up significantly starting October 31, Ahmed reports. Trades peaked on November 13 with 2,123 calls traded and on November 17 with 1,520 calls traded. Trades November 18, the day before the acquisition was announced, numbered 875. The calls give the trader the right to buy Oplink stock in the future at a set price – in this case $20 per share, well below what Koch is offering.

The activity could be a sign of insider trading based on knowledge of the impending sale announcement, a source told Ahmed. No official investigations had been announced at the time this article was posted.

For more information on optical subsystems and suppliers, visit the Lightwave Buyer's Guide.

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