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Published on : Mar 14, 2018

For the past few years, optical component and module suppliers, have been grappling with the concern of declining profitability or at least witnessing only an incremental rise. Largely, this sets the pace for the market consolidation fueled by buyouts and large-scale acquisitions. Lumentum Holdings Inc., a global seller and manufacture of optical and photonic products, has agreed on March 12, 2018 to buy Oclaro Inc., optical components producer, for about $1.8 billion. The valuation of the deal estimated in cash and stock will be used by Milpitas-headquartered Lumentum specializing in offering laser and optical fibers solutions to enterprises and telecom companies to consolidate its portfolio. In addition, this will help the acquirer get a firm foothold in the 3D sensing laser technology market.

Deal Sets Pace for Industry Consolidation for Optical Component and Module Suppliers

Analysts view the company as a component supplier of Apple’s Face ID, a facial recognition system. Under the terms of the deal, the offer price is set at a premium of 27.3% to Oclaro’s closing stock price, pegged at $7.85 as on March 9. Of note, each Oclara shareholder will receive US$5.0 in cash and 0.0636 common shares of Lumentum. This rise is significant as the surge in the value of Oclara shares wasn’t seen since July 2017.

In a yet unconfirmed revelation, Lumentum is viewed by analysts to be the key supplier of vertical-cavity surface-emitting lasers (VCSELs) used by Apple for facial recognition technology in its premium phones.

For the past couple of years, consolidation was a much-awaited since there are copious number of players in the industry focused on a handful of customers. This underscored the presence of vast research and development funding that lies unused.

Buyout to Bolster Wafer Fabrication Capability for Lumentum

The deal will be used by Lumentum to rope in technical expertise offered by Oclaro in wafer fabrication procedures       in regions such as Japan, the U.K., and Italy. This move will help it capitalize on the vast pipeline of 3D sensing designs, expected to provide a fillip to its production. According to a joint statement by the companies, the deal will boost the adjusted earnings per share of the acquirer.