5 November 2021
Lumentum acquiring NeoPhotonics for $918m
Lumentum Holdings Inc of San Jose, CA (which designs and makes photonic products for optical networks and lasers in industrial and consumer markets) has entered into a definitive agreement to acquire San Jose-based NeoPhotonics Corp – a vertically integrated designer and manufacturer of silicon photonics and hybrid photonic integrated circuit (PIC)-based lasers, modules and subsystems for high-speed communications – for $16 per share in cash (a total equity value of about $918m), a premium of about 39% to NeoPhotonics’ closing stock price on 3 November. Lumentum intends to finance the transaction through cash from the combined company’s balance sheet.
Related to the transaction, Lumentum will provide up to $50m in term loans to NeoPhotonics to fund anticipated growth, which may require increased working capital and manufacturing capacity.
The transaction has been unanimously approved by the boards of directors of both companies, and is expected to close in second-half 2022 (subject to approval by NeoPhotonics’ stockholders, receipt of regulatory approvals, and other customary closing conditions).
Lumentum reckons that the complementary combination of the two firms accelerates its exposure to and penetration of some of the fastest-growing areas of the more than $10bn market for optical components used in cloud and telecom network infrastructure. “The integrated company will be better positioned to serve the needs of a global customer base that is increasingly utilizing photonics to accelerate the shift to digital and virtual approaches to work and life, the proliferation of IoT, 5G and next-generation mobile networks, and the transition to advanced cloud computing architectures,” says Lumentum. “The combination creates a stronger partner for customers, with the ability and intent to invest strongly in innovation and manufacturing capacity,” it adds.
“With NeoPhotonics, we’re making another important investment in better serving our customers and expanding our photonics capabilities at a time when photonics are at the forefront of favorable long-term market trends,” says president & CEO Alan Lowe. “At the center of our strategy is a relentless focus on developing a differentiated portfolio with the most innovative products and technology in our industry... Adding NeoPhotonics’ differentiated products and technology and innovative R&D team is consistent with this strategy and, together, we will better meet the growing need for next-generation optical networking solutions,” he adds.
“The increasing global demand for our ultra-pure light tunable lasers and photonics technologies for speed-over-distance applications is more apparent than ever, and Lumentum is the ideal partner to serve our customers on a larger scale,” says NeoPhotonics’ president, CEO & chairman Tim Jenks. “Lumentum recognizes the importance of NeoPhotonics’ differentiated photonic technology and products, which are well positioned for accelerated growth in the coming years,” he believes. “The combination’s complementary product portfolio, increased scale, breadth of customer application knowledge, and R&D capabilities will accelerate innovation, better serve customers, and deliver significant and immediate value to our stockholders.”
Lumentum reckons that there are significant efficiency gains to be made through the acquisition, derived from increased scale, reducing redundancies and leveraging the best capabilities in the combination. The combined firm is expected to generate more than $50m in annual run-rate synergies within 24 months of the finalizing the acquisition. The transaction is expected to be immediately accretive to combined non-GAAP earnings per share upon closing. The combined company is expected to have a solid balance sheet and strong operating cash flows, creating substantial financial flexibility to pursue continued growth initiatives.