JDS Uniphase Sees the Light in Optical Coating Buy (Breakfast News) November 4, 1999


Thursday, November 4, 1999

"Man's mind, stretched to a new idea, never goes back to its original dimensions."
-- Oliver Wendell Holmes

JDS Uniphase Sees the Light in Optical Coating Buy

By Richard McCaffery (TMF Gibson)

Fiber optic component manufacturer JDS Uniphase (Nasdaq: JDSU) has reached an agreement with longtime partner Optical Coating Laboratory (Nasdaq: OCLI) to merge the companies in a stock deal worth $2.8 billion.

Under terms of the agreement, Optical Coating shareholders will receive 0.928 shares of JDS stock, not a bad commodity considering JDS closed yesterday at $191 7/16 and is up 452% this year as demand for fiber optic networking equipment drives growth.

The components JDS makes -- gadgets like transmitters, couplers, semiconductor lasers, and multiplexors -- are the building blocks of fiber optic networks, and demand for these networks is exploding as the Internet grows. Optical Coating makes optical thin film coatings and components, products that control the way light moves in fiber optic strands.

The deal is expected to expand JDS' product line and speed product development. It also seems to fit with JDS' strategy of integrating fiber optics components in order to provide its customers -- companies like Nortel (NYSE: NT) and Lucent (NYSE: LU) -- more complete solutions. The more a manufacturer can enhance and distinguish its products, the more sustainable its competitive advantage.

There's no such thing as a slam dunk when it comes to mergers, but JDS and Optical Coating have worked together under a contractual joint venture since 1997. Since they've been in the same kitchen before, chances are better they'll make good soup.

JDS said the integration of Optical Coating will help increase manufacturing capacity and reduce time to market for new products. This is critical for a manufacturing company. After all, much of what separates Intel (Nasdaq: INTC) from competitors is its amazing operational efficiency.

As a result, investors should pay attention to how well JDS manages operations going forward. Becoming familiar with measures such as days inventory outstanding (DIO) and the cash conversion cycle (CCC) is one way to do this. For more on these calculations, check out this Rule Maker story on Warner-Lambert (NYSE: WLA).

News to Go

As expected, pharmaceutical firms American Home Products (NYSE: AHP) and Warner-Lambert (NYSE: WLA) have reached an agreement to merge in a $72 billion deal that will create the world's largest drug maker. The new company will be called AmericanWarner Inc.

Telecommunications equipment manufacturer Lucent (NYSE: LU) has completed its $1.7 billion acquisition of Excel Switching Corp., a deal that will strengthen its position in the programmable networks market.

Retail giant Wal-Mart (NYSE: WMT) reported sales of $13 billion for October, a 25.2% increase from sales of $10.3 billion in October of '98. Sales for the first 39 weeks of 1999 rose 19% to $115.3 billion.

Telecommunications services provider Pac-West Telecomm (Nasdaq: PACW) plans to offer 12.6 million shares at a price between $10 and $12 per share in its initial public offering, according to an updated SEC filing. The company is expanding from California into 10 western states.

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