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SDL, JDS postpone merger vote; stocks sink

SDL shares sink after the company says it will postpone a shareholder vote on its merger with JDS Uniphase, and the U.S. Justice Department reviews a remedy that the two proposed to satisfy antitrust concerns.

3 min read
Strong earnings could not help shares of optical component maker SDL in after-hours trading.

The stock sank after the company announced it would postpone the shareholder vote on its merger with JDS Uniphase while the U.S. Justice Department reviews a remedy that the two optical component makers proposed to satisfy antitrust concerns.

Shares of SDL fell $12.38, or 5 percent, to $219.75 in after-hours trading, while JDS Uniphase dropped $3.25, or 5 percent, to $59.81.

The meeting was pushed back to Feb. 12 from Jan. 26, the second time the merger vote date was changed. The companies pushed the date back another month last December.

The companies said in a statement released after the markets closed that if the Justice Department approves the deal, details of the proposed merger remedy will be revealed to investors before the voting date.

According to Conrad Leifur, an analyst at U.S. Bancorp Piper Jaffray, many industry watchers speculate that JDS will sell a plant in Zurich, Switzerland, to satisfy regulators. Leifeur expects this solution would satisfy the government enough to permit the union.

The sale of manufacturing capacity might also fit into the broader strategy of the two potential partners. JDS and SDL "are going to have to focus on core competencies, and it's not manufacturing," said Ed Rodriguez, global sector chairman for electronics at KPMG, an accounting firm, who believes that the companies will outsource more manufacturing.

The stock merger, which swaps each share of SDL for 3.8 shares of JDS, is now valued at about $22 billion.

The news came on top of a solid fourth-quarter earnings showing from SDL that was driven by strong sales of fiber-optic communications products.

Excluding charges, the San Jose, Calif.-based company reported a pro forma net income of $48.2 million, or 53 cents a share. That compares with a pro forma net income of $12.8 million, or 17 cents a share for last year's fourth quarter. Revenue increased to $175.6 million from $58.7 million a year ago. International revenue made up 59 percent of total sales for the quarter.

"The outlook for SDL is very strong in 2001," said Leifur.

Wall Street expected the company to make earnings of 49 cents a share, the consensus estimate of 14 analysts surveyed by First Call. Nine analysts surveyed also forecasted revenue of $171.3 million for the company.

Including merger expenses, amortization charges, non-cash stock expenses and taxes on stock options, the company reported a net loss of $122.8 million, or $1.41 per share, for the quarter.

For the full year, SDL posted pro forma earnings of $132.8 million, or $1.55 a share, which compares with $31.6 million, or 46 cents a share, the company made in 1999. Revenue grew 170 percent to $504.8 million from $187 million a year. Analysts expected the company to make earnings of $1.50 a share on revenue of $499.4 million.

SDL also said that sales of fiber-optic communications products grew 257 percent from last year and comprised 89 percent of the year's total revenue compared with 67 percent in 1999.

JDS Uniphase, SDL's merger partner, will report fiscal second-quarter earnings Thursday after the markets close. Analysts surveyed by First Call expect the company to make 19 cents a share on revenue of $924 million, compared with earnings of 9 cents and revenue of about $282 million that the company posted a year ago.