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Lumentum Deals for Oclaro for $1.8B

Lumentum Holdings has put up $1.8 billion cash and stock for Oclaro, a maker of optical components and lasers that’s expected to play an important role in cable’s move toward “fiber deep”

Under the deal, Lumentum is offering $5.60 in cash and 0.0636 of a share of Lumentum for each share of outstanding share of Oclaro stock, valuing the deal at $9.99 per share or $1.8 billion in equity.

Lumentum said the offer is a premium of 27% to Oclaro’s closing price on March 9, and 40% to Oclaro’s 30-day average closing price. Oclaro stockholders are expected to own 16% of the combined company.

Shares in Oclaro closed Monday at $10.01 each, up $2.16, or 27.52%.

Lumentum said Oclaro adds Indium Phosphide laser and Photonic Integrated Circuit and coherent component and module capabilities.

Last week, Raymond James analyst Simon Leopold ran a scenario for Lumentum buying NeoPhotonics for similar high-performance optics, but said the Oclaro play “is bigger and better with higher sales, margin and time to market.”

Last week, Leopold also took a closer look at Oclaro’s opportunity in cable, as MSOs continue to look at and deploy fiber deep architectures that eliminate the actives on the network between the home and the node and play a part in the digitization of the HFC network.

RELATED: Comcast Eyes Upstream Expansion as it Pulls Fiber Deeper

"We believe new applications will emerge for tunable optics used in the cable TV outside plant,” Leopold wrote, estimating that Comcast alone could deploy 150,000 new nodes in 2019. With Oclaro getting a conservative piece of that action, he estimated that Oclaro could generate an incremental $32 million for calendar year 2019.

At the time, he put a “Strong Buy” rating on the stock based on the addition of cable-related sales and improving gross margin. 

Update: Leopold on Tuesday moved his rating on Oclaro to "Market Perform," noting that the offer represents a slight premium to his prior target of $9.50. "We consider the offer fair and doubt there will be alternate bidders for Oclaro," he wrote.