JDS Uniphase to acquire Acterna

JDS Uniphase acquired about 40 companies during the telecom heyday feeding frenzies a few years ago, and of late the company has embarked upon a focused program of manufacturing consolidations, product phase-outs, and sales of non-strategic assets in a bid to achieve profitability.

Jun 1st, 2005

SAN JOSE, CA - JDS Uniphase acquired about 40 companies during the telecom heyday feeding frenzies a few years ago, and of late the company has embarked upon a focused program of manufacturing consolidations, product phase-outs, and sales of non-strategic assets in a bid to achieve profitability. So last month’s announcement that JDSU was acquiring optical test system provider Acterna (Germantown, MD) was definitely news.

JDSU president and CEO Kevin Kennedy assured reporters and analysts gathered hastily on May 23 for a teleconferenced press announcement that the acquisition does not detract from or change timelines for the company’s previously announced program of economic rationalization, but actually enhances it in three ways. The first way has to do with strengthening of the JDSU business model with Acterna’s optical test and measurement capability to better serve growing customer demand for Internet Protocol-based data, voice and video services over optical long haul, metro, fiber-to-the-home, DSL and cable networks.

The second way has to do with immediately doubling JDSU’s addressable optical communications market as a result of both horizontal and vertical expansion. By acquiring Acterna’s $2.6 billion market expected to grow 5% to 10% annually over the next five years, JDSU expects to achieve annual sales on the order of $5 billion.

“The competencies of Acterna are consistent with the direction in which JDSU has been organically moving,” Kennedy said. JDSU currently derives 80% of its total communication revenues from about 30 tier I companies, such as Lucent, Cisco, Nortel and Alcatel, he added. Acterna derives 80% of revenues from more than 250 customers, including service providers such as Comcast, British Telecom, Verizon and SBC.

“JDSU looks to expand our visibility beyond the system vendors we are servicing today to the network providers themselves,” Kennedy said. By adding Acterna’s international footprint the combined company will have a global sales and distribution in more than 160 countries, including a direct sales force in more than 30 countries.

The Acterna acquisition will also support JDSU’s efforts to date will be in accelerating JDSU’s path to profitability, according to Kennedy. Based on preliminary results for the fiscal year ended March 2005, Acterna’s revenue exceeded $440 million. Its non-GAAP (not prepared using generally accepted accounting principles) gross margins exceeded 50% and non-GAAP earnings before income tax, depreciation and amortization (EBITDA) exceeded 11% of revenues. In contact, EBITDA at JDSU was -12%, and JDSU hopes to achieve margins of 30% in the mid term and 40% in the long term.

Under terms of the agreement, JDS Uniphase will acquire Acterna for $760 million, $450 million in cash, and $310 million in JDSU common stock. The deal is expected to close in the quarter ending September 30, 2005. Acterna, which currently employs 1770 people worldwide, will become the JDSU Communication Test and Measurement product group, led by current Acterna president and CEO John Peeler.

-Hassaun A. Jones-Bey

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