When I see a company focusing on its core competency, that's usually a good thing. For example, Micron
But that Occam's Razor principle doesn't always work. Optical networking equipment expert Finisar
Finisar will use most of the proceeds from this $40.6 million sale to help pay down debt. While that's a laudable action in most cases, this transaction smells like it was made out of necessity.
Judging from the unit's past results, it's improbable that Finisar really wanted to sell its testing unit. The segment brought in $7 million in EBITDA last year on $44.6 million of sales, giving it far wider profit margins than Finisar's larger optical equipment division. The testing tools unit dominates the attractive fibre channel testing market over respectable competitors like Agilent
So JDS Uniphase gets a market-leading addition to its test solutions business valued at less than the segment's annual sales, and it's profitable from day one. Finisar pays down some debt with the new cash, but it will still end up issuing fresh, dilutive shares in exchange for its convertible debt notes, which were due to expire next year. And Finisar's proceeds from the sale will be gone all too quickly, leaving the company without much cash left on its balance sheet.
Good on Finisar for slithering out of a tight spot, I guess, but in my eyes, the company is now weaker than it was. This is not the kind of refocus I like to see.
Further Foolish folly:
Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.