Laser-chip sale burns path for JDS merger

The fiber-optic technology maker says Nortel Networks has agreed to buy its laser-chip subsidiary, clearing the path for its merger with rival SDL.

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In a widely anticipated move, fiber-optic technology maker JDS Uniphase on Tuesday said Nortel Networks has agreed to buy its laser-chip subsidiary, clearing the path for its merger with rival SDL.

Under the agreement, Nortel will acquire the Zurich, Switzerland-based unit of JDS, along with related assets in Poughkeepsie, N.Y., in a deal worth about $3 billion.

The Zurich unit designs and manufactures 980-nanometer pump-laser chips, which are used in fiber-optic equipment. SDL is one of the largest manufacturers of fiber-optic network lasers.

JDS said it gained U.S. Department of Justice approval for its $17.6 billion acquisition of SDL after selling the plant, a requirement imposed by the Justice Department on the pending merger.

The Justice Department had been concerned that the merger would endanger competition in the growing market for telecommunications lasers. The giant merger, which was announced last July, now remains subject only to the approval of JDS and SDL stockholders, in accordance with shareholder meetings set for Feb. 12, and the closing of the Nortel buy.

JDS plans to use SDL's technology to build hardware for communications networks. JDS and SDL, both based in San Jose, Calif., share a number of major customers, including Lucent Technologies, Cisco Systems and Corning.

Tuesday?s sale follows strong earnings for both merger partners. Last month, SDL?s better-than-expected fourth-quarter earnings came at the same time both SDL and JDS announced plans to postpone a shareholder vote on their merger, originally scheduled for Jan. 26.

Although JDS also reported strong earnings for the second quarter, it cut its predictions for upcoming sales expectations, citing decreased customer spending on equipment.

Brampton, Ontario-based Nortel said it is acquiring from JDS a leading manufacturing plant for laser chips, a technology that is becoming more essential in creating fiber-optic networks. Upon completion of the deal, Nortel said it expects to continue relationships with existing customers, which, according to JDS, include some of the leaders in optical component manufacturing.

Fiber-optic technology lets a network operator send massive amounts of network traffic across networks at high speeds. This has become essential for telecommunications companies as they deal with a glut of Internet, voice and private data traffic traveling across networks.

Although the optical laser technology is not new, its potential use in communications networks is being driven in part by lower-cost components.

Under terms of the Nortel deal, the company will pay $2.5 billion in its common shares upon closing as well as up to an estimated additional $500 million in shares after Dec. 30, 2003, if it does not meet certain purchase commitments from JDS by that date. In addition, Nortel and JDS have agreed to enter into other purchase and supply contracts with each other to boost their ongoing relationship.

Once the deal is made final, the JDS subsidiary will become an indirect, wholly owned subsidiary of Nortel. Employees will remain in both Zurich and Poughkeepsie.

The Nortel deal is expected to be neutral to earnings in calendar year 2001. Both boards of Nortel and JDS have approved the transaction, which is slated to close in the first quarter of this year. The completion is subject to customer closing conditions as well as the closing of the JDS-SDL merger.