3 February 2010


Emcore to sell 60% stake in Fiber Optics business for $27.8m

Emcore Corp of Albuquerque, NM, USA, which makes components and subsystems for the broadband, fiber-optic, and solar power markets, has entered into a share purchase agreement to create a joint venture with Tangshan Caofeidian Investment Corp (TCIC), a Chinese investment firm administered by Tangshan City’s Caofeidian Industry Zone in Hebei Province. Caofeidian Industry Zone is a fast-developing area in the strategic Bohai Rim Economical Region with a total investment of $26.4bn, and hosts a large number of corporations and enterprises, including China Capital Steel and Sinopec.

TCIC will purchase a 60% stake in Emcore’s Fiber Optics business, including its telecom, enterprise, cable TV (CATV), fiber-to-the-premises (FTTP), and video transport product lines (but excluding its satellite communications and specialty photonics fiber-optics product lines). The new joint venture, Emcore Fiber Optics Ltd (EFO), will be registered in Hong Kong. TCIC will pay Emcore $27.8m in cash and provide additional funding of $27m to EFO after closure of the deal.

Executive chairman & chairman of the board Reuben F. Richards Jr will resign as executive chairman of Emcore and assume the role of EFO's chief executive officer. In addition, other Emcore senior executives and employees currently working for the transferred product lines will be offered positions with EFO. Emcore’s president & CEO Dr Hong Q. Hou will also serve as a director of EFO, providing strategic and operational oversight to the joint venture. TCIC has nominated Dr Yi Li as chairman of EFO’s board, and will name a chief financial officer after closure of the deal.

The aim for the joint venture is, over the next several years, to focus on developing a high-volume, low-cost manufacturing infrastructure and a local customer support organization to better serve the expanding customer base in China and worldwide. TCIC has also committed to providing additional funding support for the JV's future strategic growth through acquisitions.

“This is one of the most transformational transactions in the history of Emcore,” believes Hou. “This transaction creates two well capitalized, industry-leading companies within their respective industries and will enable Emcore to focus on growing its photovoltaic and defense/homeland security businesses,” he adds. “This strategy was put into motion more than two years ago by our board of directors... We look forward to continuing to expand our Fiber Optics business.”

“TCIC plans to provide a competitive fulfillment infrastructure and expand the JV’s customer penetration in Asia by strengthening the China operation,” says Wenhong Tang, vice mayor of Tangshan City. “Emcore’s Fiber Optics business is a great platform for future growth through accelerated new product developmen,” he adds.

“This recapitalization allows the Fiber Optics business to aggressively expand its business penetration to major OEM customers worldwide, and accelerate new products to market,” comments Richards. “In addition to the organic growth, we will also pursue other strategic growth opportunities in the form of acquisitions to expand our business.”

The transaction is expected to close within 90 days, pending relevant government and regulatory approvals and approval by both firms’ boards of directors.

In conjunction with establishing the joint venture, a supplemental agreement with TCIC will see Emcore establish its China terrestrial concentrator photovoltaics (CPV) manufacturing and operations base in Caofeidian Industry Zone. The agreement includes a commitment by TCIC to provide Emcore with the equivalent of $3.3m in RMB-denominated loans, tax and rent incentives and assistance in developing Emcore’s solar power business in China.

See related item:

Emcore revenues rebound by 5%, driven by broadband fiber optics

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