Lumentum agrees to buy Oclaro for $1.8 billion

Lumentum Holdings Inc. (NASDAQ:LITE) has reached an agreement to buy fellow optical component and subsystem developer Oclaro, Inc. (NASDAQ:OCLR) for $1.8 billion in cash and stock. The companies expect the deal to close in the second half of this year.

The agreement calls for Lumentum to offer Oclaro shareholders $5.60 in cash and 0.0636 of a share of Lumentum common stock for each Oclaro share held. That equates to $9.99 per share, a premium of 27% on the closing price of Oclaro's stock on March 9, 2018, and 40% on the stock's 30-day closing average. Oclaro stockholders will own approximately 16% of the merged company.

Lumentum plans to fund the cash portion of the purchase via a combination of cash on hand from the combined companies' balance sheets and $550 million in debt financing. The company expects to derive more than $60 million of annual run-rate synergies within 12 to 24 months of the deal's closing. Lumentum believes the acquisition will be immediately accretive to non-GAAP earnings per share.

"Consolidation is moving at a glacial pace, but it's finally happening," commented Vladimir Kozlov, founder of market research firm LightCounting. "Oclaro was the most improved company of 2016, so they well deserve acquisition. They did a very good job streamlining their business, getting ready for acquisition."

Oclaro has been a rumored acquisition target for some time, with current market share leader Finisar most frequently named as the potential acquirer. Finisar recently brought aboard a new CEO, Michael Hurlston, who told Lightwave that consolidation among optical components and module companies was not as straightforward a process as some outside observers have theorized (see "New Finisar CEO Michael Hurlston sees decisions ahead").

The Lumentum/Oclaro combination would likely create a company that would rival Finisar for the overall lead in market share.

"Joining forces with Oclaro strengthens our product portfolio, broadens our revenue mix, and positions us strongly for the future needs of our customers. Oclaro brings its leading Indium Phosphide laser and photonic integrated circuit and coherent component and module capabilities to Lumentum. The combined company will drive innovation faster and accelerate the development of products to enable our customers to win," said Alan Lowe, Lumentum's president and CEO via a press release. "We are delighted to welcome the talented Oclaro team to Lumentum and look forward to a swift completion of the transaction with a focus on supporting our customers and delivering shareholder value."

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