By Akanksha Rana and Uday Sampath Kumar
(Reuters) - Laser and optical parts maker II-VI Inc
II-VI will pay Finisar shareholders $26 per share in cash and stock, a premium of 37.7 percent to Finisar's closing share price on Thursday.
Finisar's shares rose 23.4 percent in trading before the bell, while those of II-VI were down nearly 7 percent at $43.65.
The combined company would make a range of transceivers to help transfer high-speed data traffic through undersea cables and 5G networks.
Global telecom companies are spending billions to develop 5G networks, which will rely on denser arrays of small antennas and the cloud to offer data speeds up to 50 or 100 times faster than current 4G networks.
II-VI, pronounced as two-six, was founded in 1971 to make optical compounds by combining elements from group two and group six of the periodic table. Some of those compounds are used to make solar cells, lasers and transistors.
The company is also targeting the fast-growing market for 3D sensing technology used for facial recognition and detecting obstacles by self-driving cars.
Both the companies supply parts to Apple, but Finisar, which makes vertical-cavity surface-emitting lasers (VCSELs) that power iPhone Face ID, has an edge as it got an investment of $390 million from Apple in December.
"Due to Finisar’s connection with Apple as a VCSEL supplier for facial recognition, this strengthens II-VI's VCSEL opportunity at Apple," Benchmark & Co analyst Mark Miller said.
Finisar and II-VI have been battling tough competition from Lumentum Holdings Inc
In a bid to consolidate its position, Lumentum said in March it would buy optical components producer Oclaro Inc
II-VI, which has a market value of about $3 billion, said it intends fund the deal with cash reserves of both companies and a $2 billion debt raise.
The deal is expected to close in the middle of 2019.
BofA Merrill Lynch is the financial adviser to II-VI, while Barclays advised Finisar.
(Reporting by Uday Sampath in Bengaluru; Editing by James Emmanuel and Sriraj Kalluvila)