Shares of Coherent (COHR) - Get Coherent Inc. Report soared on Tuesday after Lumentum Holdings (LITE) - Get Lumentum Holdings Inc. Report agreed to buy the manufacturing laser maker in a cash-and-stock deal valued at $5.7 billion.
Under terms of the agreement, Coherent shareholders will receive $100 per share in cash and 1.1851 shares of Lumentum common stock for each Coherent share they own, the companies said in a statement. The transaction value represents a premium of 49% to Coherent's closing price on Friday.
Once finalized, Coherent stockholders are expected to own approximately 27% of the combined company, which fuses together two firms whose photonics and laser products are used in everything from laser eye surgery to chipmaking to OLED displays and 3D sensors to 5G networking capabilities.
Coherent shares were up 29% in trading on Tuesday after The Wall Street Journal first reported that the two companies were in advanced talks. Coherent had a market value of $3.7 billion as of Friday's close, while Lumentum's was $8 billion.
Santa Clara, Calif.-based Coherent makes lasers and related products used in medical and scientific equipment, industrial applications and semiconductor manufacturing.
Milpitas, Calif.-based Lumentum, meanwhile, primarily makes optical components used in cloud networking, data transmission and submarine communications. It also has a lasers segment with offerings used in sheet metal and circuit board manufacturing.
It became a stand-alone company when it was spun off from JDS Uniphase in 2015.
Combining forces is expected to generate cost-cutting opportunities and allow both companies to merge their resources to better serve their respective client bases. It will also better positioned both companies to serve the needs of a global customer base increasingly dependent on photonics in manufacturing and production.
Lumentum said it will finance the cash portion of the deal through a combination of cash on hand from the combined company's balance sheet and $2.1 billion in new debt financing from a fully committed term loan.
Two members of the Coherent board will be appointed to the Lumentum board, which will be expanded to nine directors once the transaction is closed, which subject to board and regulatory approval is expected to occur in the second half of 2021.
A wave of consolidation among chipmakers and related companies was already under way in the second half of last year when the pandemic both accelerated demand and helped spark a string of large semiconductor deals.
Shares of Coherent were up 28.93% at $195.92 in trading on Tuesday. The stock had fallen about 10% over the past 12 months through Tuesday. Lumentum shares, meanwhile, were down 12.82% at $92.69; its stock had gained about 40% over the past year through last Friday.