Shares of II-VI Inc. (NASDAQ:IIVI) slumped on Friday after the manufacturer of optoelectronic components announced that it had agreed to acquire optical communication product provider Finisar (NASDAQ:FNSR). II-VI stock was down about 16.5% at 11:10 a.m. EST, while shares of Finisar were up 17.9%.
II-VI will acquire Finisar in a cash and stock deal with an equity value of roughly $3.2 billion. Finisar shareholders will receive 0.2218 shares of II-VI common stock and $15.60 in cash for each share of Finisar stock. The transaction values Finisar at about $26 per share, nearly 38% above the stock's closing price on Nov. 8. Once the deal closes, Finisar shareholders will own 31% of the combined company.
II-VI expects the combination to produce opportunities to accelerate revenue growth. The combined company will have annual revenue of about $2.5 billion, and II-VI expects to realize $150 million of run-rate cost synergies within three years of closing thanks to procurement savings, more efficient research and development, and consolidation of overlapping costs. The deal is expected to push up non-GAAP earnings per share by 10% in the first year, with that boost more than doubling in future years.
II-VI will finance the deal with cash on hand and $2 billion in debt financing. Dr. Vincent Mattera, president and CEO of II-VI, will remain in those roles at the combined company.
"Disruptive megatrends driven by innovative uses of lasers and other engineered materials present huge growth opportunities for both of our companies. ... Together, we believe that we will be better strategically positioned to play a strong leadership role in the emerging markets of 5G, 3D sensing, cloud computing, electric and autonomous vehicles, and advanced microelectronics manufacturing," Mattera said.
The transaction is expected to close in the middle of 2019, subject to shareholder and regulatory approval.