It is a big day for Oclaro, Inc. (OCLR) a leader in optical components and modules for the long-haul, metro, and data center markets. The stock is soaring and we are pleased with what we are seeing as this stock was a recommendation from Quad7Capital. (Did you miss the alert? Then join quad7capital for free now.) So what happened?

Lumentum Holdings Inc. (LITE) a leading provider of photonics products for optical networking and lasers for industrial and consumer markets, today announced that the two companies have signed a definitive agreement, unanimously approved by the boards of directors of both companies, pursuant to which Lumentum will acquire all of the outstanding common stock of Oclaro. Winning. Oclaro stock is soaring on the news.

So what are the details here?

For each share of Oclaro stock held, Oclaro stockholders will be entitled to receive $5.60 in cash and 0.0636 of a share of Lumentum common stock, subject to the terms of the definitive agreement.  We love the valuation:

The transaction values Oclaro at $9.99 per share or approximately $1.8 billion in equity value, based on the closing price of Lumentum’s stock on March 9, 2018, of $68.98. That is WINNING. The transaction value represents a premium of 27% to Oclaro’s closing price on March 9, 2018 and a premium of 40% to Oclaro’s 30 day average closing price.  Oclaro stockholders are expected to own approximately 16% of the combined company at closing.

The move makes sense, and is something we outlined in our buy alert. By combining with Oclaro, Lumentum picked up a huge benefit to its product portfolio, broadens its revenue mix, and positions it strongly for the future. 

Most notably, Oclaro’s Indium Phosphide laser and Photonic Integrated Circuit capabilities will benefit Lumentum.  This merger represents a significant move to bring together two of the optical industry leaders.

The transaction is expected to generate more than $60 million of annual run-rate synergies within 12 to 24 months of the closing and be immediately accretive to non-GAAP earnings per share.

Lumentum intends to fund the cash consideration with a combination of cash on hand from the combined companies’ balance sheets and $550 million in debt financing.

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