Optical Coating Laboratory (OCLI) shares sprinted 42% higher after JDS Uniphase (JDSU) Thursday said it would acquire its longtime partner in a $2.1 billion stock swap between a pair of highflying telecommunications-infrastructure companies.
The deal, which would give Optical Coating shareholders 0.928 JDS share for each Optical Coating share owned, provides a premium of nearly 50% to Optical Coating's Wednesday close of 119 1/4. At Wednesday's closing prices, the deal is valued at $2.1 billion.
At midday Thursday, Optical Coating was up 50 at 169 and JDS was up 1 3/4, or 1%, at 193 3/16. JDS shares have now more than doubled over the last three months as investors have sunk big money into telecommunications-infrastructure plays, and are up some 15% this week alone. At their current price, Optical Coating shares have doubled in the last six weeks, including a run-up of some 50% this week.
Optical Coating closed up 48 15/16 to 168 1/4 while JDC closed up 1/2 to 191 7/8.
The merger still requires shareholder and regulatory approval. Company officials said the agreement doesn't contain a deal killer should JDS shares fall.
Optical Coating holds an exclusive agreement to supply optical thin-film coatings, described as essential to fiber-optic communications products, to JDS, a supplier to manufacturers of optical networks for telecommunications and cable TV companies.
JDS is trying to assemble a module its customers can buy in one place, said Seth Spalding, analyst for
CE Unterberg Towbin
. Spalding's firm took
, which has since merged with JDS, public in the early '90s and underwrote a follow-up offer. Spalding rates JDS a strong buy. He doesn't cover Optical Coating.
"They are becoming an
of the optics world," Spalding said. "It's now a question of streamlining."
The merger offers JDS a variety of technologies beyond the film coating, according to Chris LeBlanc, analyst for
Banc of America Securities
, which managed the sale for Optical Coating. LeBlanc rates the stock a buy. He doesn't cover JDS.
Since the companies already had a joint venture, getting the deal past regulators shouldn't be difficult, LeBlanc said, adding that regulators will scrutinize all other intellectual property involved in the transaction.
The government isn't unfamiliar with Optical's other products. The company also makes the dye for the number 20 on $20 bills that appears to change from green to black when viewed from different angles. That's to stop counterfeiters, LeBlanc said.