Tomahawk, WI 09/16/2014 (Basicsmedia) – JDS Uniphase Corp (NASDAQ:JDSU) has announced plans to split into two separate businesses. CNBC’s Jim Cramer argues that breakups are some of the most compelling stories in the market, always sure to result in entities with more value than when combined.
Cramer expects JDS Uniphase Corp (NASDAQ:JDSU) to achieve a higher valuation after splitting into two. JDS Uniphase is among the very few companies that are rallying in the market as investors shift focus to the upcoming Alibaba IPO.
“JDSU expects the breakup to be’ completed by the third quarter of next year, and I think you should own the stock going into the Spin-off because I expect it to rally substantially from this levels since some of the parts are SOTP,” said Mr. Cramer.
JDS Uniphase has not had the best of runs in the market over the years, having shrunk from highs of $$1,182 as of 1999 to the current trading margins of $13. The optical industry according to Cramer has been extremely vulnerable thus the sudden change of fortunes for JDS Uniphase Corp (NASDAQ:JDSU). The company’s problems have also been’ compounded by the fact that the upgrade cycle for most of the carriers has not been impressive to prompt an increase in demand for products.
Things look set to change for the better according to Cramer at the back of mounting pressure from Sandell Asset Management that controls a 2% stakes in the company. The asset management company is reportedly pressurizing JDS Uniphase Corp (NASDAQ:JDSU)’s board to split the company into two as one of the ways of returning value to shareholders.
“Why am I so bullish about it? Because JDSU’s optical division and their test to measurement division never really belonged under the same roof to begin with. This are two very different businesses that just don’t have that much in common. They are not in common in terms of their margins or their core structure. The core Test and Measurement business will likely have a gross margin […] in the mid 60’s areas, 60%. Potentially heading as high as 70% that’s really fabulous,” said Mr. Cramer.
The optical business has been pulling JDS Uniphase Corp (NASDAQ:JDSU) down seen by gross margins that are in the lows of 30%. Cramer expects the two companies to perform well, operating as standalone companies than when combined.