The consolidation in the laser manufacturing space continues. After Lumentum (NASDAQ:LITE) bought out Oclaro (NASDAQ:OCLR), II-VI announced on Nov. 9 that it would buy Finisar (NASDAQ:FNSR) at a 38% premium. IIVI stock fell 18.9% on the day while FNSR stock rose 15%.
II-VI will pay for FNSR stock through a 0.2218 share swap valued at $10.40, plus $15.60 a share in cash. Just as the OCLR-LITE deal is still waiting for approval from China, the IIVI-FNSR will also need China’s approval. Shareholders also need to approve the deal and given II-VI’s sharp drop, they may vote against it. II-VI said it will save $150 million in cost synergies after three years. That timeline is long and does not justify the premium it is paying for Finisar.
After IIVI stock fell, the total value of the buyout drops. At $38, the FNSR buyout value drops from $26 to sub-$24.
Your Takeaway
The deal is hardly assured, which adds uncertainties to both IIVI and FNSR stock. Investors are better off holding LITE stock or even OCLR, where the deal is more likely. Ciena (NYSE:CIEN), which is at yearly highs, is deeply undervalued relative to its valuation of around five times P/E. Acacia (NASDAQ:ACIA) reported strong earnings that easily beat expectations. On the whole, the II-VI squandered its post-earnings stock bump by potentially over-paying for Finisar. Investors who hold IIVI will have to re-evaluate the bullish thesis now that the fundamentals changed.
