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Fiber-optic equipment manufacturer JDS Uniphase learned that to get a little, you have to give a little. So goes the lesson by the U.S. Department of Justice.
JDS won DOJ approval for its $40 billion acquisition of fellow Silicon Valley optical component maker SDL on Feb. 6. But before the deed was done, JDS agreed to sell its pump-laser chip facility in Zurich, Switzerland, to Nortel Networks for around $2.5 billion in Nortel stock. Nortel agreed to pay an additional $500 million after 2003, if it doesn't meet certain purchase levels.
After the shareholders of both companies approved the transaction last week, the deal that started back in July 2000 finally found closure.
"We've worked very hard to make this day come about," says SDL CEO Donald Scifres. "JDS Uniphase is the best company strategically, culturally and product-wise for us to be partnering with."
When the JDS-SDL merger was announced last July, analyst speculation quickly centered on the Zurich plant. The facility produces 980 nanometer pump lasers, which amplify the light signals that move on fiber-optic networks. Without selling off the plant, JDS-SDL might have controlled up to 80 percent of the market, which aroused regulatory concerns from the DOJ.
The Zurich operation, along with some related assets in Poughkeepsie, N.Y., will become Nortel subsidiaries. Clearing the last regulatory hurdle for the SDL deal also gave a reprieve to the JDS stock, which had plunged when the merger hit trouble.
Not that approval of the deal has helped much with the stock price. After peaking last March at a split-adjusted price of about $153 a share, JDS has marched steadily lower--tracking the rest of the tumbling optical sector--and at the time of the DOJ approval was trading around one-third of that value.
Nevertheless, JDS-SDL now can move forward as the largest company creating the modules and components that speed up optical networks. Even with a recent decrease in carrier spending, JDS isn't planning for any slowdown in its business.
"We weren't building enough and we weren't keeping up with our customer's demands," said JDS CEO Jozef Straus. "This merger addresses that."
Buying the Zurich plant also made sense for Nortel, which continues to ramp up its optical parts division. Nortel, as the leader in the optical network space, already was JDS' top customer.
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