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16 May 2008


Finisar and Optium agree to merge

Finisar Corp of Sunnyvale, CA, USA and Optium Corp of Horsham, PA, USA have agreed to merge, creating what is claimed to be the world’s largest supplier of optical components, modules and subsystems (with the broadest product portfolio) in the communications industry.

The combined company will leverage Finisar’s position in the storage and data networking market and Optium’s position in the telecoms and CATV industries.

“Optium has strong product technologies addressing some of the fastest-growth markets in our industry,” says Finisar’s chairman, president and CEO Jerry Rawls. Optium designs and manufactures optical subsystems supporting core to the edge applications for use in telecoms and cable TV network systems. Its optical transport solutions features fixed and wavelength-agile 10Gb/s and 40Gb/s transceivers and subsystems, 10Gb/s pluggable transceivers, cable TV trunking and distribution subsystems and Optium’s next-generation wavelength-selectable switch reconfigurable optical add/drop multiplexer (WSS ROADM) product line. The firm also has offices in Sydney, Australia (from the acquisition of WSS module maker Engana Pty Ltd in March 2006 ) and Nes Ziona, Israel (from the acquisition of 40Gb/s transceiver maker Kailight Photonics Inc in May 2007).

Finisar manufactures fiber-optic components and subsystems as well as network test and monitoring systems. Applications include high-speed data communications for networking and storage applications over Gigabit Ethernet local-area networks (LANs), Fiber Channel storage-area networks (SANs), and metropolitan-area networks (MANs) using Fiber Channel, IP, SAS, SATA and SONET/SDH protocols.

The firms reckon that the merger should broaden core customer relationships with complementary product portfolios; enhance global manufacturing flexibility (combining low-cost/high-volume and mass customization expertise); create unparalleled combined R&D resources with enhanced ability to innovate and bring new products to market; and generate new growth opportunities in attractive end-markets.

“This combination leverages the unique strengths of both companies,” says Optium’s chairman and CEO Eitan Gertel. “In combining with Finisar, we will unleash a powerful opportunity to create added shareholder value through breadth of product, enhanced customer support and manufacturing flexibility,” he adds. “With little product overlap, the proposed combination will complement both companies by providing more choice for customers, best-in-class technologies, focused technology innovation and cost efficiencies to meet our customers' requirements,” Gertel reckons.

Together, the combined company will offer the broadest portfolio of optical communications products to equipment manufacturers, it is claimed. As a result of having complementary product portfolios with substantial cross-selling opportunities, the merger is expected to generate revenue synergies.

Based on the 12 months through January 2008 reported by each firm, the combined company had revenues of about $554m. Also, for their most recent quarters, both firms expect to report record revenues. For its fiscal fourth-quarter 2008 (to end April), Finisar expects its revenues to be a record of about $120m (to be announced on 12 June). For its fiscal third-quarter 2008 (ended 2 May), Optium expects its revenues to be a record of about $45m (to be announced on 5 June). Based on these estimates, annualized revenues for the combined company should total about $660m.

“Given the scale required to be competitive in meeting global customer needs, consolidation in the optical space is long overdue,” says Rawls. “Optium’s fabless manufacturing model will allow us to more readily capture the benefits of scale, while maintaining effective resources to serve customized technology requirements,” Rawls says. Finisar has more than 4500 staff and Optium 400 or so, therefore combined staffing will approach 5000. Economies of scale associated with a larger purchasing base, rationalization of the combined infrastructure, and manufacturing flexibility driven by Finisar’s vertical integration and Optium’s highly automated in-house manufacturing capabilities are all expected to contribute to annualized pre-tax cost synergies of $10-15m are expected, with most expected on a run-rate basis one year after closing the transaction. The transaction should then be accretive to earnings per share on a non-GAAP basis.

Under the terms of the merger agreement (approved by the boards of both companies), Optium stockholders will receive 6.262 Finisar shares for each Optium share. Finisar is expected to issue about 160m common shares. Upon completion (expected in third-quarter 2008), Finisar shareholders will own 65% of the combined company and Optium shareholders 35% (with shares continuing to trade on the NASDAQ Select Market under the symbol FNSR).

Also, Finisar’s board of directors will be reconstituted to include three new directors who are currently members of Optium’s board. Finisar’s chairman, president and CEO Jerry Rawls will remain as executive chairman of Finisar’s board. Optium’s chairman, president and CEO Eitan Gertel will become Finisar’s president and CEO and will join Finisar's board, along with Morgan Jones and Chris Crespi.

See related items:

Finisar’s revenue grows 12% to a record $112.7m

Optium’s record revenues of $40.3m driven by 40Gb/s and ROADMs

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