In a bid to shake up its bottom line, Infinera announced a cash and stock deal valued at $430 million to acquire optical competitor Coriant.
Infinera said the deal, which is set to close this quarter, would double its annual revenue and expand its customer base to serve nine of the top 10 global network operators, with five new to Infinera, and the top six internet content providers, including three that would be new to Infinera.
"It's a pretty straightforward deal," said Lee Doyle, principal analyst, Doyle Research, in an email to FierceTelecom. "Infinera is doubling its size and leveraging the economics of scale in the consolidating optical industry. Large CSPs (communications service providers) prefer to work closely with a couple optical suppliers and Infinera, via Coriant, is acquiring several large new, potential customers.
"The challenge, as always, is execution. The merged company will have a complex product line and need to stream line its operations."
Infinera said the addition of Coriant, which is privately held, and debt free, would better position it to capitalize on the next wave of global spending as network operators transition from 4G to 5G and from optical transport networks (OTN) to packet networks, and from closed networks to open networks.
Once the deal clears regulatory hurdles, the new Infinera would be better equipped to compete against the larger vendors in the optical space including Cisco, Ciena and Huawei.
“Acquiring Coriant is a fantastic opportunity, strengthening our ability to serve the world’s largest network operators, accelerating our ability to leverage vertical integration and reinforcing our commitment to our long-term business model,” said Infinera CEO Tom Fallon, in a prepared statement. “This powerful combination immediately benefits our combined customers by delivering the innovative technology required for the next wave of network spending.”
Infinera said the deal would be "substantially accretive in 2019," with $100 million saved on the cost of goods and on operating expenses. Total cost savings of $250 million are expected through 2021.
Coriant has spent close to $1 billion on research and development over the past five years to address the growing demand for software automation and open, disaggregated products.
Under terms of the deal, Infinera will fork out $150 million in cash at closing, estimated additional amounts of $25 million in the two quarters post-closing and $55 million over a period of years. Infinera will issue approximately 21 million shares, which when combined with the cash consideration put the price tag at $430 million.