Shares of fiber optic-networking equipment
vendor Infinera (INFN)
are up 55 cents, or almost 3%, at $19.98, after the company
this morning announced an offer to buy Sweden’s
Transmode AB (TRMO) for
$350 million in cash and stock to expand the breadth of
offerings.
The deal includes Kr300 per Transmode share, or $34.30, in cash,
plus 4.705 Infinera shares, worth $94.47, or $128.77 in total,
above Transmode’s closing price yesterday of Kr96.50.
Infinera stock today is up 64 cents, over 3%, at $20.07, while
Transmode is up $15.75, or 16%, at Kr112.25. Shares of
Infinera’s U.S. fiber optics competitor,
Ciena (CIEN),
are up 31 cents, or 1.6%, at $19.92.
The deal moves Infinera from serving just the coast-to-coast
routes of telecom networks to competing in the
metro urban markets.
Infinera said the deal will complement the company’s
“long-haul” fiber optics transmission
equipment with a “suite of metro core, edge and access
solutions.”
J.P. Morgan’s Rod Hall,
reiterating an Overweight rating on Infinera stock, notes that this
expands Infinera’s market more than would have
Infinera’s own product for metro:
Infinera said it believes the
metro core and metro access markets combined were $5.5bn in 2014
vs. Dell’Oro’s estimate of $4.9bn. We believe INFN was
set to address the high end of the metro market with a PIC based
product later this year. However, Transmode adds an optical
aggregation capability that management believes represents 75%-80%
of the metro market.
UBS’s Amitabh Passi, who
has a Buy rating on Ciena, and a $25 price target, argues this will
have little impact on Ciena, which has already had a broad
portfolio spanning both long-haul and metro:
Transmode generates 82%/14% of its
sales from EMEA/Americas. Given little overlap, we see limited
implications for Ciena from this deal. Infinera, however, generates
76%/20% sales in the America/EMEA. We believe the acquisition is
aimed at helping Infinera better compete in Europe, where Ciena has
been seeing increasing momentum with the likes of Liberty Global
and Vodafone. While Infinera’s products predominantly (98%)
address the long-haul market, Transmode is entirely aimed at the
metro market.
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