JDSU of Milpitas, CA, USA says that its board of directors has unanimously approved a plan to separate JDSU into two independent publicly traded companies:
An optical components and commercial lasers company (CCOP), consisting of JDSU's Communications and Commercial Optical Products segments (serving a $7.4bn optical communications market, expected to grow at a compounded rate of 11% over the next four years) and a $2.5bn commercial lasers market (growing at a forecasted 7% annually). CCOP's fiscal 2014 revenues were $794.1m.
A network and service enablement company (NSE), consisting of JDSU's Network Enablement, Service Enablement and Optical Security & Performance (OSP) Products segments (addressing a $7bn network and service enablement market, expected to grow at 6-8% annually) focusing its investments primarily on higher-growth markets (particularly software supporting virtualized and software-defined networks), plus the $1.1bn optical security market (growing at an expected 6-8%, with the OSP business operating as a separate segment inside NSE). Combined fiscal 2014 revenue for NSE and OSP was $949.5m.
"Over the past five years, JDSU has invested heavily in innovation that is well aligned with the industry's best growth opportunities, including cloud networking, data-center expansion and software-defined networks," says president & CEO Tom Waechter. "These opportunities extend beyond the traditional telecom ecosystem and now include web services, over-the-top, enterprise and other customers… Two fundamentally focused companies best position us to stay ahead of the accelerating pace of technology change and to compete even more effectively across the unique markets we serve today," he believes. "Now is the time to make this transition, giving these businesses the opportunity to maximize their success while providing shareholders with distinct investment opportunities in two growth markets."
As well as creating clearer investment profiles for both companies and enhancing shareholder value, JDSU believes that the separation will allow CCOP to: devote enhanced focus to what it claims is its leading position in optical components and subsystems for the telecoms market, expand its position in the high-growth datacom market (driven by cloud networking and data-center build-outs), and grow its commercial lasers and 3D sensing businesses; and enable NSE to continue its leadership in network enablement, while continuing to transition to a more software-centric company aligned with the industry's rapid shift to software-defined networks.
Alan Lowe, CCOP's president since 2008 and executive VP of JDSU, is the CEO-designate of the CCOP stand-alone company. "He has built a strong team and has a solid track record of execution during his seven years at JDSU," comments Waechter. "Alan has a deep understanding of and familiarity with CCOP's markets and customers." JDSU's president & CEO Tom Waechter will continue in this role with the stand-alone NSE company.
The separation of the two companies is expected to occur through a tax-free pro rata spin-off of CCOP through distribution of the new CCOP company's shares to JDSU shareholders. Separation is expected to be completed in calendar third-quarter 2015, subject to the satisfaction of closing conditions including obtaining final approval from JDSU's board of directors, receipt of tax opinions, the effectiveness of an applicable registration statement with the US Securities and Exchange Commission (SEC) and satisfaction of foreign regulatory requirements. Separate corporate brand identities for each business are expected to be announced at a later date.
During the periods preceding the separation, JDSU expects to incur significant one-time charges related to the separation and to achieving related expense savings. Cash expenditures to obtain anticipated combined cost savings of about $50m are expected to be $75-100m.
For the firm's fiscal first quarter of 2015 (ending 27 September 2014), JDSU is reaffirming its guidance of non-GAAP net revenue of $405-425m and non-GAAP earnings per share of $0.08-0.12.
