Lumentum loses the battle for Coherent, and investors cheer

Coherent’s stock COHR, -0.05% lost 0.6%, as the agreement with II-VI, which was slightly below the latest revised bid from Lumentum, meant the bidding war had finally ended. Breaking the agreement with Lumentum also meant Coherent was required to pay a $217.6 million termination fee.

The latest bid from Lumentum marked the third time the company had to revise its bid to try to fend off II-VI, and implied a per-share bid that rose to $287.50, or 27% above the original bid that valued Coherent shares at $226.00 each.

It’s understandable that Lumentum investors appear happy the deal was terminated.

Lumentum shares tumbled 11.0% on Jan. 19, when the cash-and-stock deal was first announced. And as investors awaited the outcome of Lumentum’s latest revised bid, the stock closed Wednesday at the lowest price since Oct. 2, and 25.7% below the pre-deal closing price.

The stock also fell on each day that Lumentum announced a higher bid to counter II-VI’s bid: The stock slipped 0.8% on March 10, slumped 2.0% on March 17 and dropped 3.5% on March 23.

Similarly, every time Coherent announced that II-VI had made an “unsolicited” buyout bid, II-VI investors jeered: The stock tumbled 9.7% on Feb. 12, shed 6.6% on March 12 and slid 6.8% on March 18.

MKM Partners analyst Fahad Najam said that while winning the Coherent battle could have provided a “significant long-term opportunity” for Lumentum shareholders, he disagreed with those on Wall Street that the company needed the deal to add growth.

“[T]o be clear, we do not share the view among some in the investment community that [Lumentum] is pursuing this deal due to a lack of organic growth catalyst,” Najam wrote in a recent note to clients. “We think reality couldn’t be further from this narrative.”

He stressed that the company enjoyed “considerable growth drivers” over the longer term, as its optical communications business is set to benefit from increasing demand for bandwidth and the Hyperscale Data Center 400G upgrade cycle should provide a boost in the near term.

Meanwhile, before the original merger deal was announced, Lumentum shares had rallied 40.1% in the 12 months to Jan. 15, while II-VI shares had soared 141.8% and the S&P 500 index SPX, +0.17% had advanced 14.6% over the same time.