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9 November 2018

II-VI to acquire Finisar for $3.2bn

© Semiconductor Today Magazine / Juno PublishiPicture: Disco’s DAL7440 KABRA laser saw.

Engineered materials and optoelectronic component maker II-VI Inc of Saxonburg, PA, USA has agreed to acquire fiber-optic communications component and subsystem maker Finisar Corp of Sunnyvale, CA, USA in a cash and stock transaction with an equity value of about $3.2bn.

Under the terms of the merger agreement (which has been unanimously approved by the boards of directors of both firms), Finisar’s stockholders will receive, on a pro-rated basis, $15.60 per share in cash and 0.2218x shares of II-VI common stock, valued at $10.40 per share based on the closing price of II-VI’s common stock of $46.88 on 8 November. The transaction values Finisar at $26 per share (about $3.2bn in equity value), representing a premium of 37.7% to its closing price on 8 November. Finisar shareholders will own about 31% of the combined company.

The firms reckon that the merger will unite two industry leaders with complementary capabilities and cultures to form a photonics and compound semiconductor company capable of serving the broad set of fast-growing markets of communications, consumer electronics, military, industrial processing lasers, automotive semiconductor equipment and life sciences. Together, they will employ over 24,000 people in 70 locations worldwide.

“Disruptive megatrends driven by innovative uses of lasers and other engineered materials present huge growth opportunities for both of our companies,” reckons II-VI Inc’s president & CEO Dr Vincent D. Mattera Jr. “In communications, materials processing, consumer electronics and automotive, we expect that the combination with Finisar will allow us to leverage our combined technology and intellectual property in indium phosphide (InP), gallium arsenide (GaAs), silicon carbide (SiC), gallium nitride (GaN), SiP and diamond to achieve faster time to market, cost and scale. Together, we believe that we will be better strategically positioned to play a strong leadership role in the emerging markets of 5G, 3D sensing, cloud computing, electric and autonomous vehicles, and advanced microelectronics manufacturing.”

“Our companies both have a long history of focusing on innovation, breakthrough solutions and competitive follow-through by manufacturing high-quality products,” Mattera continues.

“The combination of our state-of-the-art technology platforms, deep customer relationships, great assets and amazing talent will enhance our ability to hit market windows that won’t stay open for long,” believes Finisar’s CEO Michael Hurlston. “This combination will accelerate our collective growth and will take advantage of the technology, products and manufacturing expertise that Finisar has uniquely developed over the course of its 30 year history,” he reckons. “The growth potential for the combined company is substantial.”

Strategic rationale

As a combined company, II-VI and Finisar aim to continue to leverage their commercialization of complex technologies to maximize value through vertical integration and manufacturing scale, complementing each other at all levels of the value chain, including in the following strategic areas:

  • Optical Communications: The combined firm will provide a full line and scalable supply of high-performance Datacom transceivers, products based on coherent transmission technology and ROADMs (reconfigurable optical add/drop multiplexers). It will market products into next-generation undersea, long-haul and metro networks, hyperscale datacenters and in 5G optical infrastructure.
  • Platform for 3D sensing & LiDAR: Combined optoelectronics technology based on GaAs and InP laser design platforms, together with one of the world’s largest 6-inch vertically integrated epitaxial growth and device fabrication manufacturing platforms, should enable faster time to market for a greater number of opportunities in 3D sensing and LiDAR.
  • Access to larger markets: The broad portfolio of differentiated engineered materials, including GaAs, InP, SiC, GaN and diamond, together with a critical mass of optoelectronic, optical and integrated circuit device design expertise and related intellectual property, should give access to larger markets in RF devices for next-generation wireless and military applications, as well as power electronics for electric cars and green energy.
  • Maximizing value creation through vertical integration: Deep vertical integration of core technologies ranging from engineered materials to high value-add solutions, enabled by differentiated components, should provide the combined firm with a foundation to capitalize on a broad range of emerging opportunities while making the overall markets more competitive.

Enhanced financial performance

In addition to the strategic benefits, it is reckoned that the merger will:

  • Accelerate revenue growth: On a pro-forma basis, combined annual revenue is about $2.5bn. The combined broad base of talent, technology and manufacturing is expected to enhance the ability to address near-to medium-term opportunities and accelerate revenue growth.
  • Provide synergy potential: The combined firm expects to realize $150m of run-rate cost synergies within 36 months of closing. Synergies should be achieved from procurement savings, internal supply of materials and components, efficient R&D, consolidation of overlapping costs and sales & marketing efficiencies.
  • Strengthen earnings accretion: The transaction is expected to drive accretion in non-GAAP earnings per share for the first full year post-close of about 10%, and more than double that thereafter.

II-VI intends to fund the acquisition with a combination of cash on hand from the combined companies’ balance sheets and $2bn in funded debt financing. The transaction is expected to close in the mid-2019 (subject to approval by each firm’s shareholders, anti-trust regulatory approvals and other customary closing conditions). Mattera will continue to serve as president & CEO of the combined company, and three Finisar board members will be appointed to the II-VI board (which will expand to 11 directors).

See related items:

Finisar’s quarterly revenue grows more than expected due to ROADM deployment in China and India

II-VI completes acquisition of WSS firm CoAdna

Tags: Optical communications II-VI Inc Finisar

Visit: www.finisar.com

Visit: www.ii-vi.com

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