Alcatel Will Complain About JDS Uniphase's E-Tek Buy (Update3)|
By Erik Schatzker
Alcatel Will Complain About JDS Uniphase's E-Tek Buy (Update3)
(Updates with late trading.)
Paris, March 22 (Bloomberg) -- Alcatel SA, Europe's No. 2
phone-equipment maker, said it will complain to U.S. antitrust
enforcers that JDS Uniphase Corp. will command too much power to
raise prices if the biggest maker of fiber-optic components is
allowed to buy rival E-Tek Dynamics Inc.
JDS Uniphase agreed in January to buy E-Tek in a transaction
now valued at $20.3 billion. The U.S. Department of Justice is
scrutinizing the proposal and interviewing customers of both
companies to determine whether the acquisition would hurt
competition in the market for parts that boost the capacity of
Alcatel, E-Tek's No. 1 customer, wants the acquisition
delayed until it can find another source of components, said
Alcatel USA Vice President of Product Strategy Paul Harrison. That
process that could take as long as a year, he said.
``On some components there are no other suppliers,' Harrison
said. ``We don't want to get into a situation where there's only a
Complaints by big customers like Alcatel ``bode ill for the
deal,' said Steven Newborn, a Washington antitrust lawyer with
Clifford Chance, Rogers and Wells.
Alcatel fears that JDS Uniphase will increase prices of some
products once it completes the purchase. Currently, Alcatel can
pressure the companies -- its two biggest suppliers of the parts -
- to keep prices down by offering more business to one than the
other. E-Tek got a third of its $72.5 million in sales from
Alcatel in its fiscal second quarter, which ended Jan. 1.
Alcatel, based in Paris, is the biggest maker of fiber-optic
transmission systems used to send large amounts of phone and data
traffic back and forth undersea. It also makes systems for land
networks and plans to double its sales of those products in North
America to $400 million this year, targeting phone companies such
as MCI WorldCom Inc., Sprint Corp., Qwest Communications
International Inc. and Level 3 Communications Inc.
The difference, or spread, between the value of JDS
Uniphase's offer for E-Tek stock and the price of E-Tek stock has
widened to $61.99 from $28.77 Monday. That's a sign some investors
are doubting that JDS Uniphase will get antitrust clearance to
complete the acquisition. E-Tek fell 4 1/16 to 225 15/16 on the
Nasdaq Stock Market and dropped as low as 220 3/4 after the close
of regular U.S. trading. JDS Uniphase rose 3 7/8 to 130 7/8,
rising as high as 131 7/8 after the close.
Harrison said he hasn't been contacted by Justice Department
investigators and didn't know if other Alcatel officials had been
interviewed by phone or in person.
Lucent Technologies Inc., the world's No. 1 maker of phone
equipment and both a competitor and customer of JDS Uniphase and E-
Tek, yesterday said it had been questioned by Justice Department
lawyers over the telephone. Lucent said it took ``no formal
position' on the combination. Nortel Networks Corp., the biggest
maker of fiber-optic equipment, declined to comment.
JDS Uniphase and E-Tek haven't increased the prices they
charge Alcatel since they announced the acquisition on Jan. 17,
In addition, JDS Uniphase has tried to address Alcatel's
worries by telling the company that it will be a valued customer
after the E-Tek acquisition. Harrison said he received assurances
from JDS Uniphase President Jozef Straus, who also visited Alcatel
Chief Executive Serge Tchuruk.
Still, Alcatel is concerned about getting enough thin-film
filter components. The filters are used in a process known as wave-
division multiplexing, or WDM, that combines the beams of multiple
lasers on a single strand of fiber, boosting the capacity of
optical networks. Once combined, JDS Uniphase and E-Tek, both
based in San Jose, California, would dominate the WDM component
JDS Uniphase and E-Tek also struck a side agreement on Jan.
17 to supply each other with needed components until they complete
the acquisition. Unless JDS Uniphase could extend the agreement
while customers like Alcatel find other suppliers, ``if I were
betting, this would not go through' said Clifford Chance's
Alcatel's problem is that it has developed a dependency on
both JDS Uniphase and E-Tek as its only suppliers of certain
parts. Finding other suppliers that can meet Alcatel's strict
quality requirements and make enough parts will be difficult,
Harrison said. Components require a variety of tests before a
customer like Alcatel will qualify them.
The company likely will try to develop Corning Inc. as a
second supplier, as well as look to smaller companies, Harrison
said. Corning, the biggest maker of optical fiber, last month
agreed to buy NetOptix Corp. in a transaction now valued at $2.3
billion to gain the filter production it needs to make more WDM
JDS Uniphase is ``fully cooperating with the Justice
Department and providing them with whatever information they
require to evaluate the transaction,' Senior Vice President of
Business Development Mike Phillips said yesterday. The company
declined to comment on what its customers say to the Justice