- An optical components and commercial lasers company (“CCOP”) consisting of JDSU’s current Communications and Commercial Optical Products segment. The CCOP company, with its long-standing reputation for optical innovation and quality, serves a $7.4 billion optical communications market expected to grow at a compounded rate of 11 percent over the next four yearsi. It also addresses an approximate $2.5 billion commercial lasers market, growing at a forecasted 7 percent annuallyii.
- A network and service enablement company (“NSE”) consisting of JDSU’s current Network Enablement, Service Enablement and Optical Security and Performance Products (OSP) segments. The stand-alone NSE company will be a leader in its core businesses, addressing an approximate $7 billion network and service enablement market expected to grow at 6-8 percent annuallyiii. The NSE company will primarily focus its investments in higher growth markets, particularly software supporting virtualized and software-defined networks. The optical security business addresses an approximate $1.1 billion market growing at an expected 6-8 percentiv.
The new company will be led by CCOP’s current President Alan Lowe. The press release implies that the impetus behind the move is that the improved focus will allow for better performance at each company, including the ability to stay ahead of the curve. Of course, Sandell Asset Management’s recently acquired 2% stake and supposed prodding of the company to explore its options might have had something to do with it. Dealbook suggests that Sandell is more in favor of divestitures and would prefer a sale of the components business instead of a spinoff. Worth keeping that in mind.
Interestingly, the company expects to realize $50m of ‘expense reduction’ as a result of the transaction, but there really wasn’t much detail shared on that point in the press release. Usually these types of moves create significant one-time costs and afterwards both companies end up having higher SG&A burdens as each company needs its own accounting, HR etc.
The stock soared over 10% on the news, but JDSU has historically been a wild name to own. Check out the long term charts and also look at the amount of losses racked up over the past 15 years. TheStreet.com summarizes a few sell-side analysts’ opinions on the move, which were mostly positive. Looking ahead though (which is all that really matters), the spinoff is expected to be completed sometime in Q3 2015 so there is plenty of time to study this one in greater depth and determine if the future is indeed brighter for these two companies.
Disclosure: Author holds no position in any stock mentioned.