Lumentum reiterates its case for Coherent merger continuation

Lumentum Holdings Inc. released a statement today in which it reiterated its position that the parameters of the agreement it has signed to acquire Coherent, Inc. (NASDAQ: COHR; see "Lumentum to buy Coherent to expand laser and photonics reach") remains superior to that MKS Instruments Inc. (NASDAQ: MKSI) submitted on February 4, 2021 (see "MKS Instruments files bid for Coherent in defiance of Lumentum sales agreement"). While MKS has offered more for Coherent, the original merger has a better chance of achieving regulatory approval, Lumentum asserts.

The new statement came in reaction to the offer letter MKS made public February 8, 2021. The letter, signed by MKS President and Chief Executive Officer John T.C. Lee, points out that the $115 in cash and 0.7473 of a share of MKS common stock spelled out in the new offer for each outstanding share of Coherent common stock represents $850 million more in incremental value versus the Lumentum offer of $100.00 in cash and 1.1851 shares of Lumentum common stock. The offer also contains a larger cash component. The letter references an attached proposed merger agreement, which so far has not been released publicly, which Lee describes as “substantially identical to the terms of your announced merger agreement with Lumentum.”

In today’s rebuttal, Lumentum takes issue with that characterization of MKS’s proposed agreement. “In fact, MKS's proposed merger agreement, which MKS has not made public, contains material deviations from the merger agreement between Lumentum and Coherent, specifically relating to the regulatory approval process and path to completion,” says Lumentum. “We believe the terms of MKS's proposed merger agreement would impose significant closing risk to Coherent and its stockholders in light of the substantial antitrust impediments that MKS's proposed combination would face.”

In particular, Lumentum says it stands ready to go to great lengths to achieve such approvals, including the sale any of Lumentum's overlapping products to appease regulators in China, where delays in the approval of U.S. based mergers have proven commonplace and problematic (see, for example, “II-VI to refile Finisar purchase approval request with Chinese authority” and “Acacia Communications says Cisco merger is off; Cisco disagrees”). Conversely, the company says that MKS has made no such commitments in the face of potentially greater areas of product and revenue overlap. The result would be significant delays in closing a deal with MKS and a loss of value to shareholders if MKS has to divest product lines to resolve such delays.

For its part, the board of Coherent has been quiet since it acknowledged receipt of MKS’s proposal on February 8. At the time it said it was evaluating the MKS offer but did not indicate when that evaluation would be completed.

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