What happened

Shares of Oclaro Inc. (NASDAQ:OCLR) skyrocketed 27.5% on Monday after the optical component specialist agreed to be acquired by photonics products leader Lumentum Holdings (NASDAQ: LITE).

More specifically, Oclaro investors will receive $5.60 per share in cash and 0.0636 of a share of Lumentum common stock for each share of Oclaro they own. Based on Lumentum's closing price of $68.98 on Friday, March 9, 2018, that values Oclaro at roughly $9.99 per share, or $1.8 billion -- a roughly 27% premium to Oclaro's Friday closing price.

Woman drawing a picture on a wall of a big yellow fish eating a smaller yellow fish

Image source: Getty Images.

So what

"I am very pleased that two of the optical industry leaders, Oclaro and Lumentum, will join forces," stated Oclaro CEO Greg Dougherty. "Together, we will be an even stronger player in fiber optic components and modules for high-speed communications and a market leader in 3D sensing."

Dougherty further called it a "fantastic combination for Oclaro's stockholders, employees, customers and partners alike.

To be sure, in addition to enjoying stronger R&D capabilities and a broader product portfolio, the combined company is expected to generate over $60 million of annual run-rate synergies within the 12 to 24 months of closing and should be immediately accretive to adjusted earnings per share. 

Now what

To that end, Lumentum plans to fund the deal with a combination of cash on hand from the combined companies' balance sheets and $550 million in debt financing. And the transaction still requires the approval of Oclaro shareholders, as well as regulators in the U.S. and China. But assuming all goes as planned, the acquisition is expected to close in the second half of calendar 2018.

With Oclaro stock currently trading a few pennies above the agreed acquisition price -- and if waiting a little longer to sell won't result in more favorable long-term capital gains tax treatment -- I think Oclaro investors would be wise to sell their shares and put their money to work elsewhere.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.