Skip to main content
rob magazine

A room filled with hundreds of people who you've helped make rich is not exactly what you'd call a tough crowd. For Jozef Straus and Kevin Kalkhoven, co-chairmen of fibre-optics equipment maker JDS Uniphase Corp., their first annual shareholders meeting in Ottawa last December was a lot like a homecoming for a sports team that had just won a championship. The fans lapped it all up--the glowing reflections on the newly merged company's first year together, the rosy forecasts and the jokes. "We're a leader in fibre optics and we can't get a light that works," quipped Straus as he struggled with a light stick to point at a pie chart projected on a screen above him.

The crowd had ample reason to applaud. The value of their shares had climbed by almost 800% since Straus and Kalkhoven had announced the merger of Straus's Nepean, Ont.-based JDS Fitel Inc. and Kalkhoven's San Jose, Calif.-based Uniphase Corp. in January, 1999. The merger propelled the company to the forefront of the industry. The two men looked like an unbeatable combination of opposites. Kalkhoven, the CEO, who loves to ski and fly his Piper Seneca in his spare time, was the marketing whiz and a natural front man. Straus, the president, complemented him in almost every respect. He's a self-effacing Czech-born research physicist who always wears his trademark black beret and two wristwatches--one for the time zone he's in now and one that is set to the city where he's headed next.

Despite the camaraderie, the pair stayed together for just five more months after the annual meeting. In May, Kalkhoven, 56, resigned abruptly, citing personal reasons and complaining that, in the previous year, he'd spent "only six full weekends at home without either working or travelling." He has not commented since then, and Straus has not elaborated either, other than to say they are still friends. Straus, 54, is now the controlling force at the company.

He certainly hasn't shied away from the challenge. After Kalkhoven stepped down, Straus forged ahead with JDS Uniphase's $20.3-billion (all currency in U.S. dollars) all-stock acquisition of San Jose-based E-TEK Dynamics Inc., another leading fibre-optic equipment maker. Then, in July, he announced a blockbuster deal of his own, a $41-billion all-stock bid for San Jose-based SDL Inc., another big competitor. In dollar value, it is the biggest deal ever for a Canadian company.

Straus was characteristically uncomfortable with the subsequent media attention. "You do what you have to do," he said. That's entirely in keeping for someone who once insisted that three colleagues accept a technology award with him. But in case anyone assumes that Straus is a pushover, Zita Cobb, JDS Uniphase's executive vice-president of strategic business development, who has worked with him for over a decade, says that "mild-mannered doesn't mean mild of action."

The market also warmed to Straus's first moves. JDS Uniphase shares were trading at around $80 (U.S.) on the Nasdaq stock exchange at the time of Kalkhoven's resignation, following a rout of technology stocks in March and April. With Straus alone at the helm, the stock climbed back to more than $130 by mid-July.

Will he be able to keep up the pace of expansion? He has plenty of fans among analysts and fund managers. "He's the guy--there isn't anybody else in fibre optics with his stature," says Duncan Stewart, a partner and portfolio manager at Tera Capital Corp. in Toronto. "He's becoming what Wayne Gretzky is in hockey or Michael Jordan in basketball." Other analysts who track the company may not be quite as starstruck, but, as of late July, almost all of them rated the stock a "strong buy" or a "buy."

JDS Uniphase manufactures lasers, optical switches and hundreds of other components for fibre-optic telecommunications and cable-television networks. Its history stretches back 20 years. Uniphase began life in 1979 in a California garage making lasers used in supermarket scanners. JDS Fitel was founded in 1981 by Straus and three other scientists--Gary Duck, Philip Garel-Jones and William Sinclair--who had met in the 1970s at the legendary Bell Northern Research Ltd. laboratories in Ottawa, where they conducted pioneering research work on commercial fibre optics. A few years later, Straus and Garel-Jones moved on to Northern Telecom. There, they realized Nortel had no wish to actually manufacture all the equipment it had developed. So they struck out on their own.

JDS Uniphase's biggest customers are giant Lucent Technologies Inc. and Nortel Networks. With the explosion in fibre-optics networks in recent years, JDS Uniphase has been struggling to keep up with demand. So Kalkhoven and Straus chose to expand the fastest way possible--through acquisitions.

Since JDS and Uniphase merged, the combined entity has acquired nine more companies. Only one of those deals was all-cash. JDS Uniphase has relied almost entirely on its buoyant stock to finance its expansion. That presents big opportunities and big risks. The increases in the share price have allowed the company to go after bigger takeover targets. But they have also made it easy to pay steep prices. The day the proposed SDL merger was announced, JDS Uniphase's market capitalization totalled $86.7 billion. It offered SDL shareholders a 50% premium over the market price for their shares.

The acquisitions have boosted revenues and operating profits dramatically. For the financial year ended June 30, 2000, JDS Uniphase reported a pro-forma profit--which excludes writedowns and other non-cash charges related to the takeovers--of $394 million on sales of $1.77 billion. Those results included E-TEK. The year before, JDS Uniphase earned pro-forma profit of $124.6 million on sales of $587.9 million.

But writedowns and other non-cash charges have more than offset those operating profits. Over all, JDS Uniphase and E-TEK lost a combined total of $868.4 million for the year ended June 30, 2000. That was up sharply from JDS Uniphase's $171.1-million loss the previous year.

Because of the sheer size and complexity of the all-stock transactions, and the non-cash costs, it is difficult to get a handle on the company's finances. Looking at the proposed terms of the SDL takeover, a BusinessWeek headline asked, simply, Is JDS Uniphase Bonkers? The article noted that SDL's 1999 sales were just $187 million, and that the $41-billion purchase price amounted to $24 million for each of its 1,700 employees.

More clouds appeared at the end of July. Nortel president and CEO John Roth said he was worried about consolidation among suppliers of fibre-optics components, implying that JDS Uniphase is getting too big for comfort. "We like to have multiple vendors so we are developing our own supplies as backup," he said. "We can't have all our eggs in one basket." Nortel still has its own fibre-optics-components manufacturing business and, at the time, it was exploring the possibility--soon abandoned--of taking over New York state-based Corning Inc.

Straus didn't bite back publicly. He said consolidation has been good for Nortel and other customers by driving down prices for equipment. He added that Roth had never complained to him about it. "We have been a good supplier to Nortel," he said.

U.S. regulators are also throwing up roadblocks. The Justice Department took five months to approve the

E-TEK purchase, and the company had to make some minor concessions. The SDL deal will undoubtedly face even more extensive scrutiny.

However, the stock-fuelled growth is also feeding on itself. As JDS Uniphase gets bigger, it generates more stock purchases by index-fund managers and Canadian fund managers who have few large high-tech companies to choose from. JDS Uniphase Corp.'s stock trades on the Nasdaq stock exchange. As well, so-called exchangeable shares in JDS Uniphase Canada Ltd. trade on the Toronto Stock Exchange. They qualify as Canadian securities and can be swapped 1-for-1 for shares in the parent company.

On July 20, JDS Uniphase's shares jumped by 18% as investors geared up for the stock's inclusion in the benchmark Standard & Poor's 500 Index the following week. Those increases help JDS Uniphase with stock-based purchases of other companies. Straus says that he won't stop with SDL. But almost as soon as that deal was announced, some analysts wondered if it would go through. Even if it doesn't, JDS will likely continue to go after smaller companies.

The acquisitions have added to Straus's workload, yet he shows no signs of slowing down. He's a tireless, espresso-fuelled executive who keeps plugging away well into the night and isn't shy about leaving very late phone messages and e-mails for colleagues.

Yet Straus is by no means a slave to corporate orthodoxy. Married, with three sons, he is also known for his playful enthusiasm. He's quick to quote from his favourite book--Antoine de Saint-Exupéry's children's classic, The Little Prince--during conference calls with analysts and reporters. He also waltzes around JDS Uniphase's offices on occasion.

Interviewed late in the evening following a one-day road show to Kansas City, Boston, New York City and Toronto to promote the SDL deal, Straus is reluctant to describe himself. Finally, he relents: "I'm just a guy who has to go home and change his underwear." His to-do list just keeps getting longer.

Report on Business Company Snapshot is available for:
JDS UNIPHASE CANADA LTD.

Report an editorial error

Report a technical issue

Editorial code of conduct

Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 7:00pm EDT.

SymbolName% changeLast
GLW-N
Corning Inc
-0.18%32.96

Interact with The Globe