19 January 2021
Lumentum to acquire Coherent for $5.7bn
Lumentum Holdings Inc of San Jose, CA, USA (which designs and makes photonic products for optical networks and lasers in industrial and consumer markets) has entered into a definitive agreement to acquire Coherent Inc of Santa Clara, CA (which provides lasers and laser-based technology for scientific, commercial and industrial applications) for $5.7bn ($100 per share in cash and 1.1851 shares of Lumentum common stock for each Coherent share, as unanimously approved by the boards of directors of both companies). The transaction value represents a premium of 49% to Coherent’s closing price on 15 January. At closing, Coherent’s stockholders are expected to own about 27% of the combined company.
Lumentum intends to finance the cash consideration of the transaction through a combination of cash on hand from the combined company’s balance sheet and $2.1bn in new debt financing from a fully committed Term Loan B.
Two members of Coherent’s board will be appointed to Lumentum’s board, which will be expanded to nine directors, at the closing of the transaction (which is expected in second-half 2021, subject to approval by Lumentum’s and Coherent’s stockholders, receipt of regulatory approvals and other customary closing conditions).
The combination unites Coherent’s photonics and lasers businesses, including in the microelectronics, precision manufacturing, instrumentation and aerospace & defense markets, with Lumentum’s telecom, datacom and 3D sensing photonics businesses, creating a diversified photonics technology company with significantly increased scale and market reach. It should accelerate Lumentum’s penetration of the more than $10bn market for lasers and photonics outside of the communications and 3D sensing applications, it is reckoned. The R&D engine of the combined firm is expected to accelerate innovation in existing and future markets that need the unique capabilities of photonics. The combined company should be better positioned to serve the needs of a global customer base increasingly dependent on photonics to enable key end-market transitions including the shift to digital and virtual approaches to work and life, the transition to 5G in wireless networking, advanced bioinstrumentation, advanced microelectronics, and new materials for next-generation consumer electronic devices, flat-panel and organic light-emitting diode (OLED) displays, communications equipment, electric vehicles (EVs) and autonomous vehicles (AVs), and energy storage.
“Today’s announcement is an important advancement of Lumentum’s strategy,” says the firm’s president & CEO Alan Lowe. “In our five years as a standalone public company, we have focused on developing the most innovative products and technology in our industry and partnering with market-leading customers to help them compete and win in their markets. As we look ahead, we are thrilled to join forces with Coherent to create one of the world’s largest and most diverse photonics technology companies with leading positions in the growing market for photonics. Coherent brings one of the most recognizable and respected brands in the photonics industry and a very talented and innovative team. By increasing our scale, expanding our portfolio, and bolstering our R&D capabilities at a time when global markets are increasingly relying on photonics products and technologies, we are confident in our combined ability to pursue exciting new growth opportunities,” he adds.
“Together, we expect to increase the pace of innovation, and to be at the forefront of the long-term market trends that are dependent on the capabilities of photonics,” continues Lowe. “The combined company will also have a strong financial profile with a diversified revenue mix and significant synergy opportunities that will deliver enhanced value to our stockholders,” he believes. “We look forward to welcoming Coherent’s talented employees to the team and are confident in our ability to execute a smooth integration focused on supporting both companies’ employees and customers,” concludes Lowe.
“We anticipate the combined complementary product portfolio, breadth of customer application knowledge, and R&D capabilities, all based on photonics, will accelerate innovation and adoption of photonics across the many markets that we serve,” says Coherent’s president & CEO Andy Mattes. “We are excited to bring Coherent’s strength in OLED display manufacturing, semiconductor wafer inspection and life science instrumentation to Lumentum’s portfolio, to name but a few of the key applications we serve, and believe Lumentum’s expertise and scale in world-class photonics components and systems will accelerate Coherent’s vertical integration and addressable market expansion in several high-growth areas, such as directed energy in defense and precision battery welding in automotive. We look forward to contributing to a customer-centric, innovative culture with a track record of operational excellence,” he adds. “We are also pleased to deliver immediate and substantial value to our stockholders, as well as meaningful participation in the long-term growth opportunities created by the combined company… I look forward to working closely with Alan and the Lumentum team on a smooth transition.”
Substantial run-rate synergies and solid accretion to earnings:
Lumentum reckons that there are significant efficiency gains in combining derived by the increased scale, reducing redundancies, and leveraging the best capabilities in the combination. The combined firm is expected to generate more than $150m in annual run-rate synergies within 24 months of the closing of the transaction. The transaction is expected to be accretive to the combined firm’s non-GAAP earnings per share during the first full year. Upon closing, there is expected to be a solid balance sheet and strong operating cash flow, creating substantial financial flexibility to pursue continued growth initiatives.