Infinera Stock Soars on Nokia Acquisition. It's Challenging Ciena and Huawei. -- Barrons.com

Dow Jones06-28 20:00

By Adam Clark

Infinera was leaping on Friday after agreeing to be acquired by Finnish telecommunications network equipment company Nokia. It's a sign that competition is about to get fiercer in the optical-networking market where Ciena is a leader.

Nokia agreed to acquire Infinera in a deal valued at $2.3 billion. The deal would value Infinera at $6.65 a share, a 28% premium over the share price at Wednesday's close and a 37% premium over the trailing 180-day volume weighted average price, the companies said.

Infinera shares were up 19% at $6.28 in premarket trading on Friday while Nokia's American depositary receipts were up 0.8%.

"The combination will increase the scale of Nokia's Optical Networks business by 75%, enabling it to accelerate its product roadmap timeline and breadth; providing better products for customers and creating a business that can sustainably challenge the competition," Nokia said in a statement.

In the optical networking market, Nokia will be taking on U.S. company Ciena and China's Huawei. The combined Nokia and Infinera will have a market share of around 20% globally, broadly equal to Ciena but lagging Huawei's 31% share, according to J.P. Morgan analyst Samik Chatterjee.

"Ciena is less likely to make a competing bid given complexity in integrating competing optical portfolios as well as hurdles in regulatory approval given Ciena's majority (51%) share of the North America market," wrote Chatterjee in a research note.

Ciena shares were broadly flat in premarket trading. The stock is up 7% this year so far but the company is still facing an issue with telecoms companies working through inflated inventory.

A particular growth area which Nokia is hoping to take advantage of is connecting data centers, a business which is expected to receive a boost from the boom in artificial-intelligence technology.

"Infinera has...recently been developing high-speed and low-power optical components for use in intra-data center (ICE-D) applications and which are particularly suited to AI workloads which can become a very attractive long-term growth opportunity," Nokia said.

Nokia is set to pay at least 70% in cash, and Infinera's shareholders can elect to receive the remainder in Nokia's depositary shares, the companies said. Nokia's board committed to increase its share buyback program to offset the dilution from the deal.

Write to Adam Clark at adam.clark@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

 

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June 28, 2024 08:00 ET (12:00 GMT)

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