Is JDSU Up For Grabs? (JDSU)

JDS Uniphase Corp. (NASDAQ: JDSU) is seeing a run in the stock and in the options trading today.  The company announced this morning that had “licensed patent rights for fundamental picosecond laser technology to Hamamatsu Corporation for the development of microelectronic products.” Yet there may be more to the story here as some consider it one possible takeout or merger target in the land of technology.  This notion of an acquisition may seem impossible if you have known the company since it was a $100 and far higher stock back in the tech bubble days.

OptionsHawk.com pointed out to us today that as “a recent takeover target mention” it is trading more than 20,000 calls today, with 18,000 in December with a buyer of 15,500 December $8 calls at the $0.10 offer with shares at $6,85.  OptionsHawk even called this “a lotto ticket bet”  and noted that implied volatility is elevated 4% to 47%, and the low delta call block could potentially be part of a buy-write strategy  even though the calls traded offer side, but still a bullish view on shares.

The company’s earnings were just out last Thursday after the close.  While it made money on a non-GAAP basis of $0.04 EPS, it lost $0.15 on a GAAP Basis.  Despite a revenue of $297.8 million, compared to $273.1 million the prior quarter and $377.2 million a year before, its CEO said the quarter does “represent growth across all of our business segments providing clear evidence of improving demand from our customers…” For next quarter, the company’s guidance is non-GAAP net revenue in a range of $320 to $345 million.  It would also make sense that any benefit from this license pact announced today would have been included in forward figures.

The company’s cash and short-term investments are listed as a combined $648.6 million, with restricted cash at another $24.5 million and long-term investments adding another $13.6 million.  And fixed assets are listed as $184.5 million.  Long-term debt is $254.1 million, and other non-current liabilities are listed as another $177.1 million.  All said and done, liabilities come to about $733 million.  Total assets come to $1.647 billion, yet tangible assets backing out goodwill and intangibles puts the value at $1.29 billion in tangible assets.  With a $1.49 billion market cap, a takeover could be plausible on the surface, but when you consider that it would probably take a very significant premium to get shareholders to vote for a deal then the viability of a deal might not make as much sense.

We’ll openly admit that anything is possible in the world of buyouts.  But our own stance here is that anyone buying JDS Uniphase better be doing it based on its future internal business rather than on whether management can convince holders to accept an offer for the company.

Shares of JDS Uniphase are up 6.6% at $6.89 today.  If there was a widespread belief of an imminent buyout coming, then we’d expect to see much more trading than 4 million shares today versus 3.6 million on average.

Jon C. Ogg
November 9, 2009