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Bookham, Avanex: the merger is on

02 Feb 2009

The rumour that refused to go away finally becomes reality, as the two components vendors agree to merge.

Beleaguered components vendors Avanex and Bookham have reached a definitive agreement to merge in an all-stock deal worth approximately $35.4 million (€26.7 million).

Avanex shareholders will receive 5.426 shares of Bookham common stock for every share of Avanex common stock they own, and will end up owning 46.75% of the combined company. Based on the closing price of Bookham stock on 26 January 2009, this arrangement values Avanex at $2.17 per share — a considerable premium over its current stock price of $1.30.

When the deal closes, which is expected to take three to five months, the combined company will take on a new name that has yet to be decided. Bookham's president and CEO Alain Couder will retain those roles at the new company.

Rumours of a tie-up between Avanex and Bookham have been circulating since late 2006, when it is thought that a deal nearly happened. The justification for the merger looks much better now, according to Couder.

"If we have done that [deal] several years ago it could have been quite expensive, but each company has done a great job to clean its own house and to end up very complementary," Couder told investors on the conference call last night.

Now the vendors say that the merger is important because it gives them critical scale. For many years the undisputed powerhouse of the telecoms components space was JDSU. But that started to change last year with mergers between Finisar and Optium, and between Opnext and Stratalight, which created companies of a similar size to JDSU.

"I think that by putting our two revenues together we can really start playing in the tier 1 camp and we can become, in long-haul and metro market, probably one of the largest, if not the largest company in the market segment," said Couder.

Based on the September 2008 quarter annualized, an Avanex/ Bookham combination would have revenues of $447 million, putting it in fourth position behind Opnext with $455 million, JDSU's telecoms division with $532 million and Finisar with $638 million.

The combined company will have arguably the most complete product portfolio for the metro and long haul markets, Couder claims. Bookham primarily brings chip-level and components expertise, and tunable products in particular. Avanex brings to the table strength in subsystems such as optical amplifiers, wavelength management, and dispersion compensators.

Couder expects the combination to generate $20 million of total savings in the first quarter after closing, while costing less than $7 million for restructuring in the same period. Cost savings will come from sales side and supply chain synergies. For instance, Bookham is a leader in pump lasers, which are a key component of the optical amplifiers that make up a significant part of Avanex's portfolio.

Another attraction of the deal is the ability to focus R&D dollars rather than spreading them more thinly by pursuing the same opportunities as stand-alone companies.

• Note, however, that Bookham's numbers don't include the impact of Nortel's bankruptcy. Bookham, which purchased Nortel's in-house components division back in 2003, has historically had very strong ties with the Canadian vendor, and although it has reduced its dependency on Nortel as a customer, Nortel still accounted for 11% of Bookham's revenues in the second quarter of 2009, which ended on 27 December 2008.

HÜBNER PhotonicsCeNing Optics Co LtdAlluxaSPECTROGON ABIridian Spectral TechnologiesHyperion OpticsTRIOPTICS GmbH
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