Shares of optical networking component maker Opnext
Opnext CEO Harry Bosco says the merger will give the combined company the "critical mass" needed to win in the laser diode market. Furthermore, the combination creates a leader in the ultra-fast optical transceiver segment behind Finisar
Opnext shareholders will end up owning about 42% of the new entity. The board will also split 60/40 in Oclaro's favor. Those ratios are roughly in line with the pre-merger companies' sales: Oclaro's trailing revenue stands at $417 million against Opnext's $327 million, so 56% of the sales come from Oclaro today.
At $745 million altogether, the total company would still be smaller than Finisar or JDSU. The company does put some space between itself and Infinera
And of course, there will be cost-saving synergies. Expect a heavy dose of layoffs once the merger closes. Given that both Oclaro and Opnext sport negative operating profit and EBITDA margins, the move is understandable.
Does this deal signal the start of massive consolidation in the optical industry? I wouldn't be surprised. In this sector, a handful of large elephants are dancing with lots and lots of little mice. The flooding in Thailand last year hit this industry hard, and it may simply be cheaper and easier to build new companies out of the remains of badly damaged old ones. And let me point out that Finisar and JDSU sit on respectable piles of cash with little debt, making for easy all-cash buyouts as the opportunities come along.
Digital video services and the big data trend will drive growth in high-speed networking for years to come, and maybe even decades. In a special report penned by the Fool's finest analysts, you'll find the only stock you need to profit from the new technology revolution in big data and business intelligence. The report is totally free, but it won't be available much longer, so get your copy right away.
Fool contributor Anders Bylund holds no position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Infinera. Motley Fool newsletter services have recommended buying shares of Infinera and writing naked calls on JDS Uniphase. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
More from The Motley Fool
Why Optical Networking Stocks Had a Difficult Year in 2017
One giant customer lifted Applied Optoelectronics in the first half, but even that shining star joined Oclaro and Finisar in gloomy market trends later on.
Why Many Optical Networking Stocks Plunged in November
Demand for optical components may be unpredictable these days, but there's nothing wrong with this sector in the long run.
Why Oclaro, Inc. Could Be a Gold Mine for Value Investors
This unloved optical stock could be a great value play for patient investors.