JDS UNIPHASE GOES MULTIPHASE WITH ITS ACTERNA ACQUISITION

A mid plant consolidations and the dispensing of product lines, JDS Uniphase took advantage of a rejuvenated test market last week and began building for the future with the proposed $760 million acquisition of Acterna.

JDSU announced its intent to acquire Acterna, one of the top three test equipment companies in the industry, for $450 million in cash and $310 in JDS Uniphase common stock.

The acquisition is expected to close sometime in the third quarter, perhaps as early as July, said Kevin Kennedy, president and CEO of JDS Uniphase. “This acquisition creates the leading provider of optical communication products and broadband test and measurement solutions with annualized revenues in excess of $1 billion,” he said.

Acterna provides broadband and optical test and management solutions to the service provider and network equipment manufacturing segments of telecom and cable networking companies. JDS Uniphase designs and manufactures optical technologies for a range of industries, including cable TV, telecom, aerospace, defense, medical and environmental.

Kennedy said the acquisition supports his strategy for JDSU on three fronts. First, it strengthens the business model by broadening its portfolio and makes JDSU better equipped to meet customer demands for integrated systems. Next, it doubles the market in the communications space. Finally, by addressing a combined market valued at approximately $5 billion annually, it accelerates the company's path to profitability.

“The competencies of Acterna are consistent with the direction that JDSU is organically moving,” Kennedy said.

Not everyone sees it that way. Some analysts questioned the lack of synergies between the companies' customer bases and product lines. They also questioned the timing of the move, given JDSU's ongoing restructuring and recent termination of 700 employees. In addition, Acterna only emerged from bankruptcy about 18 months ago.

Kennedy said the acquisition in no way distracts from its manufacturing consolidation and product phase-outs. He said the acquisition was timed so that it closes in July when these initiatives are mostly complete.

“We do not underestimate the challenge of integrating a company of this scale and breadth,” Kennedy said. “Over the last 12 months we have assembled an experienced M&A team that has already developed detailed integration plans.”

From a market perspective, Frost & Sullivan analyst Jessy Cavazos said the timing is not so bad. “The test and measurement market started stabilizing in 2003 and in 2004 saw real revenue growth. So if JDSU wants to take advantage of the revenue opportunities that come from the market recovery, now is a good time to place their bet,” she said.

Cavazos added that Acterna, despite experiencing some tough years since it was created by the merger of TTC and Wavetek Wandel Goltermann in 2000, “[has] remained one of the major companies in the space.”

Cavazos sees Acterna as the number three test provider behind Agilent Technologies and Spirent in terms of revenue, but said its position with service providers is strong. “JDSU will get more direct information from service providers that will help them with their existing customer base and ensure they are moving in the right direction,” she said.

John Peeler, president and CEO of Acterna, will lead JDSU's new Communications Test and Measurement Group. He has risen through the ranks of Acterna over 25 years and was named head of TTC in 1992; he took over Acterna in 2000.

Acterna's revenue last year was approximately $440 million and it has about $75 million in cash reserves. The company has moved to an outsourced manufacturing model, except for final assembly and testing. JDSU is doing the same.