The optical components company Bookham Technology hopes to secure some much-needed cash together with a "cost-efficient manufacturing capability" in China through a deal to buy New Focus, an American photonics company.
The purchase, announced yesterday, values New Focus at £117.6m. Following an £86m cash distribution to New Focus shareholders immediately prior to the deal, the acquisition would come with some £65m in cash.
Earlier this month concerns had been raised about the depletion in Bookham's cash reserves as the loss-making company continued to burn cash at an alarming rate. The chief executive officer, Giorgio Anania, said that yesterday's deal would "put behind us worries of liquidity".
The acquisition of a ready-made manufacturing facility in China appears to be equally important. Mr Anania said that New Focus's state-of-the-art factory in Shenzhen, which was empty, could house "several thousand" workers and "lower Bookham's manufacturing costs", raising concerns that Bookham could make further job cuts in the UK.
In February the company announced 200 job losses at its plant in Abingdon, Oxfordshire, and cut employee numbers by a further 180, to 1,500, in July.
Mr Anania confirmed that a transferral of resources to China was an option but added that "these things take time".
An analyst, who did not wish to be named, said that the principal risk had been lack of cash and that this had now been eased. Whether the deal represented a fundamental change for the two loss-making businesses was less clear.
He also said that, if the possibility of a move to China was not high on the list of key benefits, then it appeared to be an expensive way of raising cash.
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