Optical communications and intelligent transport networks provider Infinera (Sunnyvale, CA), announced its intent to acquire Coriant (Naperville, IL), a privately held supplier of open, hyperscale network solutions. The acquisition significantly scales the company as the next wave of global network spending begins, creating one of the world’s largest optical network equipment providers. Infinera says that the acquisition would approximately double revenue, expand its customer base, and reaffirm its vertical integration strategy.
The acquisition will help Infinera capitalize on the next wave of global network spending as network operators transform their networks to transition from 4G to 5G, from Optical Transport Network (OTN) to packet and from closed to open network architectures. Ovum forecasts optical network spending to reach $17.8 billion in 2022.
"Acquiring Coriant is a fantastic opportunity, strengthening our ability to serve the world's largest network operators, accelerating our ability to leverage vertical integration and reinforcing our commitment to our long-term business model," said Tom Fallon, Infinera CEO.
"Joining forces with Infinera accelerates our vision of transforming next-generation networks with best-in-class innovation," said Pat DiPietro, CEO and vice chairman of Coriant. "The combined company will benefit from Coriant’s significant investments in software automation and open, disaggregated solutions, which have gained significant traction and wide-scale adoption by customers around the world."
The acquisition is expected to be substantially accretive in 2019. This accretion will come from $100 million of identified cost savings in both cost of goods sold and operating expenses. Total cost synergies of $250 million are expected through 2021, with the continuation of operating synergies and the introduction of vertical integration into the Coriant product line, resulting in a step-function increase in Coriant's margins. Infinera will be acquiring a debt-free balance sheet and expects cash flows to pay back transaction consideration within three years.
Under the terms of the definitive purchase agreement governing the acquisition, subject to customary adjustments, Infinera will pay approximately $150 million in cash at closing, and estimated additional amounts of $25 million in the two quarters post-closing and $55 million over a period of years. Infinera will issue approximately 21 million shares, which when combined with the cash consideration, results in total transaction consideration of approximately $430 million.
Confident in the combined company's opportunities, Coriant's majority owner, Oaktree Capital Management expressed an interest in being compensated for this transaction largely in stock. The acquisition is expected to close in the third quarter of 2018, subject to customary closing conditions.
Infinera will provide its second quarter results and commentary on its Q2 earnings call on August 7, 2018. Preliminarily, communications revenue is expected to be slightly higher than the midpoint of its previously reported guidance range; GAAP gross margin and non-GAAP gross margin are expected be at the high end of its previously reported guidance ranges; GAAP operating expenses and non-GAAP operating expenses are expected to be in line with the midpoint of its previously reported guidance ranges; and GAAP operating margin and non-GAAP operating margin are expected to exceed its previously reported guidance estimates.