Lumentum Holdings has announced an agreement to purchase the laser manufacturer Coherent in a cash-and-stock deal valued at $5.7 billion.
Under terms of the agreement, Coherent shareholders will receive $100 per share in cash and 1.1851 shares of Lumentum common stock for each Coherent share they own. A statement notes that the transaction value represents a premium of 49% to Coherent's closing price on January 15. When the ink is dry, Coherent stockholders will own roughly 27% of the combined company. The merger joins two companies whose photonics and laser products are components in 3D sensors, laser eye surgery, chipmaking, OLED displays, and 5G networking capabilities.
Lumentum explained that it will finance the cash portion of the deal through a combination of cash on hand from the combined company's balance sheet and $2.1 billion in new debt financing from a fully committed term loan.
The deal requires two Coherent board members on the Lumentum board. The combined board will expand to nine directors. Board and regulatory approval is necessary for the deal. The companies should complete the merger in the second half of 2021.
About Lumentum and Coherent
Coherent organized in 1966 in Santa Clara, California. The company focuses on lasers and related light-emitting products used in medical equipment, industrial applications, and semiconductor manufacturing. Coherent makes lasers and related products used in medical and scientific equipment, industrial applications, and semiconductor manufacturing.
Lumentum, based in Milpitas, California, mainly manufactures optical components used in cloud networking, data transmission, and submarine communications. The company also has a lasers segment with offerings used in sheet metal and circuit board manufacturing. Lumentum became a stand-alone company when JDS Uniphase spun it off in 2015.
Andy Mattes, Coherent’s president and CEO, said in a recent press release that he believes Coherent's "complementary product portfolio, breadth of customer application knowledge, and R&D capabilities" will help to "accelerate innovation and adoption of photonics" across the markets the two laser makers service.
Observers expect combining the two companies willcreate cost-cutting opportunities. It will also permit both companies to merge their resources to better serve their respective client bases. The merger will also better positioned both companies to serve the needs of a global customer base increasingly dependent on photonics in manufacturing and production.
Shares of Coherent zoomed 33% in trading on Tuesday after the deal was announced. The stock had fallen about 10% over the past year before that jump. Its stock now trades at over $200 per share and boasts a market cap of $4.93 billion as of Tuesday morning. The company gained over $1 billion in market value versus Friday's closing mark of $3.7 billion.
Lumentum shares were down almost 13% at $92.69. the company’s stock had gained about 40% over the past year through last Friday.
Coherent had a market value of $3.7 billion as of Friday's close, while Lumentum's was $8 billion.
Both companies are rated favorably by analysts, with a combined 18 "buy" ratings versus just two "sell" ratings.