CommScope is in talks to restructure its joint venture agreement with Furukawa Electric Co. Ltd. of Japan. The two had planned two joint ventures connected with Furukawa's and Corning Inc.'s $2.75 billion acquisition of Lucent Technologies' Optical Fiber Solutions unit. But CommScope's third quarter results compelled new talks.
The original venture deal, announced in July, was to close by the end of September, but was delayed until the end of this month, as a result of the Sept. 11 terrorist attacks, CommScope reported in September.
Under the original deal, CommScope was to invest about $650 million in the two joint ventures. One venture would give CommScope 51 percent ownership in the fiber cable portion of Lucent's fiber optic business and the other would give the company a 49 percent interest in the transmission fiber part of the same business, CommScope said then. Furukawa would own 49 percent of the first venture and 51 percent of the second. CommScope intended to fund its portion by issuing a combination of debt and equity, it said in July.
But CommScope's third-quarter sales fell 31 percent to $177.7 million, it reports, and net income fell to $6.4 million, or 12 cents a share, during the quarter, compared with $23 million, or 45 cents a share, for the same time a year ago. Bookings were down 45 percent to $141.6 million.
Those results, combined with economic uncertainty, a telecom market downturn and financial market problems, prompted the company to restructure the original agreement, CommScope says.
"We are in discussion with Furukawa to restructure CommScope's participation in the joint ventures, given the current environment," Chair and CEO Frank M. Drendel says in a statement. The company expects to reduce its investment and participation, and record a $9.3 million charge in the third quarter as a result.
In a conference call this morning, Drendel said CommScope still expects the deal to close Nov. 16. The company can't say much about the deal, he added, but said management "loved the company enough to take a less risky position, but still have access to the technology and access to the resource, and a long-term shared-owned resource for fiber."
Furukawa's long-term goal is to eventually have the companies go public, he said.
CommScope's fourth-quarter guidance show sales to be down 10 percent to 20 percent sequentially.