JDS strikes $41 billion deal to fill strategy hole

JDS Uniphase will acquire SDL, a maker of fiber-optic network lasers, in one of the largest technology acquisitions ever. Under the terms of the agreement, shareholders of SDL will receive 3.8 JDS shares, or $441.51, for each SDL share, almost 50 percent more than SDL's Friday closing price.

JDS will incorporate SDL's technology to build parts for communications networks, the company said in a statement. JDS will be able to increase its capacity to fill a backlog of orders for equipment that beams information on hair-thin strands of glass.

The SDL purchase will be the largest acquisition JDS has made yet. In June, the company purchased communications equipment maker E-Tek Dynamics for $15 billion.

Fiber-optic technology lets a network operator send larger chunks of network traffic across their networks at higher speeds. This has become essential for telecommunications firms as they deal with a glut of Internet, voice and private data traffic being sent across their sprawling networks.

As a result, component suppliers like JDS Uniphase--one of a few companies that create the parts that end up in the equipment sold by the likes of Cisco Systems and Ciena, among others--are red hot, reaping the benefits of a boom in demand for network capacity.

Just as Intel has become the primary component supplier for the PC industry, JDS Uniphase aspires to be the dominant player in parts for networking equipment, particularly high-growth optical technology.

Some analysts believe that a successful merger of the two companies will create an optical powerhouse.

"We view JDS Uniphase's announced agreement to acquire SDL very positively," wrote David Wong, an analyst at Paine Webber, in a research report this morning. "We think that some technology areas in which SDL will significantly strengthen JDS Uniphase include" optical and laser technologies.

He added, however, "While we do not know how the Department of Justice will view the intent to merge, we believe that investors will have significant concerns about antitrust issues threatening successful completion of the deal."

JDS and SDL, both based in San Jose, Calif., sell technology components to companies that build systems to run fiber-optic networks. They also share a number of major customers, including Lucent Technologies, Fujitsu, Cisco and Corning.

A Merrill Lynch analyst last week said that the optical networking equipment industry JDS Uniphase serves is characterized by "whatever a company can make, it can sell." Those market conditions are the primary drivers of today's $41 billion play for more technology, according to analysts.

"This is a capacity contrained industry and as such any increase in manufacturing capacity is a positive that may help eliminate some bottlenecks," Merrill Lynch told its investors in a report today following news of the acquisition.

SDL has approximately 1,700 employees and reported sales of $72 million in its first quarter ended March 31, 2000, while JDS Uniphase has over 17,000 employees and reported sales of $395 million in its fiscal third quarter ended March 31, 2000.