Lumentum (NASDAQ:LITE) started 2021 with a big bang as the company announced the acquisition of Coherent (COHR), enough of a reason to look at the implications of the deal on the investment thesis. I think that this deal is quite strategic in the long haul, both on a strategic and synergy front. Here and now the premium is a bit high, reflected in a decline in Lumentum's share price already.
Having been quite bullish on the stand-alone prospects for the company, and liking this deal in the long run, I am happy to start buying on dips to the ninety mark from here.
The Deal
Lumentum has reached a deal to acquire Coherent in a transaction valued at $5.7 billion. The company will pay $100 per share in cash for Coherent and offer 1.1851 shares in Lumentum for every share owned by investors in Coherent, giving them a combined 27% stake in the new company. Investors in Coherent are most likely quite pleased with the deal, taking place at a 49% premium, thereby valued at $226 per share. Note that the premium is quite high given Coherent’s $5.7 billion equity valuation, with the premium alone being equivalent to $1.9 billion.
The deal is driven by strategic rationale, that of adding Coherent's expertise in photonics and laser, with Lumentum's telecom, datacom and 3D Sensing capabilities. Added expertise, more diversified operations and greater R&D budgets allow for accelerated innovation in photonics. This is needed to take advantage of the growing opportunities in 5G, bioinstrumentation, microelectronics and new materials for end markets like consumer electronic devices, flat panel and OLED displays, energy storage and autonomous and electrical vehicles.
Besides this rationale and the anticipation of accretion to adjusted earnings in year one after deal closing, investors should furthermore look forward to $150 million in annual
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