Oclaro $OCLR Is this merger a Good Deal for Oclaro Shareholders?

I think So! Buy low and Sell high is the objective.  Sure, they have some challenges, but I think buying right here will be a excellent opportunity.  More on this after my appointment.

I was hopeful that Oclaro was executing the business model back to pre-flood levels in my previous posts and that we would see earnings improve in the coming quarters.  I am a little less confident this will be the case, but only a little less confident.  I listened to the conference call yesterday and could only think that Oclaro has lost market share to Finisar and, as a result, had to "buy" business.
This is in fact what they did.  But, as I have bought Oclaro at (what I think) will be a market bottom, it makes me feel good that management shares in my thinking.  Buy low and sell high is what its about.  Oclaro shareholders paid 177m  for 212m in revenue at peak flood revenue effects.  So, not a bad deal, I think.  But here is the nugget of chocolate-Opnext guided March quarter at $73m (midpoint).  Putting some math to that we can see Oclaro really bought 292 million in revenue for 177m.
I also listened to Opnext's most recent conference call.  They indicated that come June quarter they expect to be at preflood revenue levels.  This puts the merger in its most favorable light.  If this is true, Oclaro purchased 380 million in revenue at a 53% percent discount and thus may see a 100% ROI on this merger.  I think the risk is worth the reward at these levels.
I am not sure shareholders of Opnext will approve this deal because I think they will suffer the most, so I speculate that Opnext has lost market share more than anyone and that I think we shouldn't expect revenues to reach preflood levels by June. I am modelling out more of the 85m area and thus Oclaro likely paid 177m for 340m in revenue.  
In looking at the product overlap, there doesn't appear to be much overlap and management said that a merger will help margins as more internal component parts will be designed into more complex components, where before they were outsourced.  Also, some savings will be realized (longer term) in closing and consolidating fixed assets.
I will be listening very closely during the Oclaro's and Opnext's next conference calls and will keep you posted.  But I think this is a very compelling price to buy Oclaro at this level.


Jwells
PS. please look at a "commercial" to help me continue thoughtful content.


JWells