Lumentum, the laser maker Marvell agreed on Monday to buy for $115 billion in stock, was carved out of JDS Uniphase, the company that once paid $41 billion in stock for a laser maker and then posted a $56.1 billion annual loss.
The rhymes are close. Marvell is paying a fixed 4.5 of its shares for each Lumentum share, a 23.9 percent premium to where Lumentum traded before word of the deal leaked, and Lumentum holders will own a third of the combined company. By Bloomberg’s count it is the largest deal of the year. Marvell’s stock fell 12.72 percent, and Lumentum, whose holders are being paid in Marvell shares, fell 18.59 percent with it. In July 2000, JDS Uniphase offered 3.8 of its shares for each share of SDL, a maker of semiconductor lasers, at an almost 50 percent premium with no collar to protect SDL if JDSU’s price fell. JDSU’s stock dropped 13 percent that afternoon.
What happened next is written in JDSU’s own filings. The accounting set the value of those acquisitions at the stock prices of the day the deals were announced, and the company later conceded that the goodwill came from buying when valuations were high; at lower prices and the same exchange ratios, it would have been considerably smaller. By March 2001 its net assets exceeded its market value by about $40 billion. For fiscal 2001 it cut goodwill and other assets by $50.1 billion and reported the $56.1 billion loss. Its shares, $116 the Friday before the SDL announcement, traded near $10 a year later. In 2015 JDSU spun off its optical products business as Lumentum and renamed what was left Viavi.
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What’s different is what’s being bought. SDL had $72 million of quarterly sales and traded at more than 250 times its expected earnings. Lumentum, in the quarter ended September, earned $360.3 million on $1.26 billion of revenue. Marvell is paying roughly 20 times Lumentum’s annualized sales; JDSU paid roughly 140 times SDL’s. The premium is half as rich, too.
The 2000 deal priced a laser company in a currency that lost most of its value within a year. Marvell is paying in the same kind of currency, and the deal isn’t expected to close until the first half of 2028.
The 2000 deal priced a laser company in a currency that lost most of its value within a year.
