Oclaro (OCLR) Surges as Analyst Speculates About Finisar (FNSR) Takeover

Oclaro (NASDAQ: OCLR) is gaining sharply today (+7.8%) as analyst James Kisner at Jefferies speculated that a potential acquisition by Finisar (NASDAQ: FNSR) at a 40% premium ($10.76) could result in FNSR shares appreciating to 12x our estimate of combined FNSR/OCLR earnings power of $3.19; this would in turn drive OCLR shares even higher to $13.89, providing another path to ~$14 for OCLR shares.

The analyst highlights comments from Finisar CEO Jerry Rawls’ on its FQ3 earnings call regarding the motivation of its recent $575M convertible debt raise suggested increased potential for FNSR to do a large acquisition.

Rawls said, "So I think consolidation in general is good. And the issue is – and we obviously did a big convert to build our cash balances, so that we are prepared in case we encounter or pursue some opportunity for the consolidation"

Kisner said the acquisition would make sense as: 1) there are significant sales force and R&D synergies – about we estimate roughly 1/3 of FNSR’s revenue overlaps with 2/3 of OCLR revenue; and 2) an acquisition of OCLR would significantly improve Finisar’s presence and capabilities in the long haul telecom optics/discretes space.

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