Are Oclaro Shareholders Getting Enough in the Acquisition?

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Oclaro Inc. (NASDAQ: OCLR) saw its shares surge early on Monday after it was announced that the company would be acquired by Lumentum Holdings Inc. (NASDAQ: LITE). This acquisition comes in the midst of acquisition rumors swirling in the semiconductor space concerning the likes of Intel and Broadcom.

As for Oclaro, Lumentum is paying a total of roughly $1.8 billion in cash and stock. The transaction breaks down for each Oclaro shareholder to receive $5.60 in cash and 0.0636 of a share of Lumentum common stock. Overall this transaction is valued at $9.99 per share.

At the close of this transaction, Oclaro stockholders are expected to own approximately 16% of the combined company.

The transaction is expected to generate more than $60 million of annual run-rate synergies within 12 to 24 months of the closing and be immediately accretive to non-GAAP earnings per share, although the firm did not give a number.

Note that the board of directors for each company unanimously approved this deal, and it is expected to close in the second half of 2018.

One thing to pay attention to, and the question investors always need ask in these acquisition situations, is whether the shareholders are getting enough in this deal.

Looking at the charts, this deal offers premiums of 45% and 24%, compared to the 50-day and 200-day moving averages of $6.87 and $8.06, respectively. If we look a little further back, we’d see that this was a $9 or so stock for most of 2017. However, prior to 2016 this was really just a $2 stock. This would be an incredible return for investors who were in this company for the long haul.

Alan Lowe, Lumentum’s president and chief executive, commented:

Joining forces with Oclaro strengthens our product portfolio, broadens our revenue mix, and positions us strongly for the future needs of our customers. Oclaro brings its leading Indium Phosphide laser and Photonic Integrated Circuit and coherent component and module capabilities to Lumentum. The combined company will drive innovation faster and accelerate the development of products to enable our customers to win. We are delighted to welcome the talented Oclaro team to Lumentum and look forward to a swift completion of the transaction with a focus on supporting our customers and delivering shareholder value.

Shares of Oclaro were last seen up more than 25% at $9.85, with a consensus analyst price target of $7.93 and a 52-week trading range of $5.61 to $10.93.

Lumentum shares were up more than 4% at $71.89, with a consensus price target of $75.56 and a 52-week range of $40.35 to $72.95.