Lucent Scoops up Ortel
By
Richard McCaffery (TMF Gibson)
February 7, 2000
In a move to better compete in the fiber optics equipment arena, telecommunications equipment maker Lucent (NYSE: LU) is buying optoelectronics company Ortel Corp. (Nasdaq: ORTL) for $2.95 billion in stock.
Under terms of the agreement, each share of Ortel will be exchanged for 3.135 shares of Lucent, a deal that values Ortel at about $177 per share on a fully diluted basis. Ortel closed Friday at $177 1/8.
Shareholders were less than enthusiastic about the announcement, sending Ortel down about $11 or 6% in early trading. Lucent fell about $1/4 to $56 3/4. But what a run Ortel has had, from about $6 a year ago to $177. That's a 2,850% climb.
What's happened is Ortel has a new management team that's returned the company to profitability and focused on the super-hot arena of fiber optics communications. The company's pump lasers and components help build the capacity of cable television lines and other communications networks. In addition, the company owns a minority stake in Tellium, a privately held optical switching company that's sure to make a big splash when it goes public.
Ortel investors are afraid the fast ride is over -- as an easy-to-track, fiber optics equipment play, that is. Ortel had $72 million in revenues last year, compared to $38 billion for Lucent.
Also, Lucent's well-publicized fourth quarter earnings miss has many investors afraid the company isn't growing as fast as originally thought. The Murray Hill, New Jersey company will have to resume solid growth, reduce inventories, and get a better handle on receivables to get back into Wall Street's good graces.
Nevertheless, Ortel investors would be smart to think long term. While Lucent has some serious issues to deal with, so did Motorola (NYSE: MOT) at the end of 1998. Looking back, it's hard to believe Motorola fell to less than $40 a share in October of that year. It's now at $154. Sure the company had problems to fix, but it also had a long track record of technical excellence, profitability, and shareholder focus.
Lucent doesn't have the same legacy as an independent company, since AT&T (NYSE: T) didn't spin it off until 1996. But the company's research and development division is second to none. It's competing in the technology industry's hottest sector (communications, optical networking), has one of the industry's broadest product portfolios, and has shown an increased willingness to buy what it needs to stay on the cutting edge. Evidence its partnership with Tellium, which it will soon own a nice chunk of.
Ortel shareholders won't likely see the kind of quick returns they've grown used to over the last 52 weeks, but they've got a chance to be part owners in one of the most admired technology houses in the world. A little patience might reward the antsy shareholder.
