Juniper responds to shareholder pressure with $160 million cost-cutting plan
Facing pressure from activist shareholder Elliot Management, Juniper Networks (NYSE: JNPR) unveiled a new integrated operating plan (IOP) that includes cutting $160 million in operating costs by the first quarter of 2015 and returning capital to shareholders over the next three years.
These latest cost-cutting measures will enable Juniper to achieve a 25 percent operating margin in 2015, which it said is an improvement of 580 basis points from 2013. Shaygan Kheradpir, Juniper Networks' new CEO, will head up a Cost Control Committee, and the company hired McKinsey to help with the restructuring process.
The vendor also said it would return $3 billion to shareholders over the next three years via a combination of share repurchases and dividends, including up to $2 billion in shares repurchased by the first quarter of 2015.
Juniper will initiate a quarterly cash dividend of 10 cents per share beginning in the third quarter of 2014, with the expectation to increase the dividend over time. The shareholder remuneration will be funded by a combination of existing cash and newly issued debt.
In addition to the financial restructuring, the vendor appointed Kevin DeNuccio, a former Cisco (Nasdaq: CSCO) executive, and Gary Daichendt, the former CEO of Redback Networks, as new independent directors. Kevin Johnson, Juniper's former CEO, will retire from the board at the end of February.
Jesse Cohn, portfolio manager at shareholder Elliott Management, said the new changes were "an incredibly positive development."
Nomura equity analyst Stuart Jeffrey wrote in a research note that while Juniper's latest move does address its near-term issues, the lack of details on its High-IQ Networks strategy is a key concern.
"New CEO Kheradpir described Juniper's new High-IQ Networks strategy as a solution in which information on users, traffic flows, hosts and security threats are aggregated from the company's routing, switching and security solutions to accelerate application deployments and better secure networks," Jeffrey wrote. "Details were lacking with regard to how Juniper might do this better than rivals however."
Another issue is the need to create an optical strategy with an established partner such as Ciena (NYSE: CIEN), Infinera (Nasdaq: INFN), Fujitsu, ADVA Optical Networking (XETRA: ADV.DE) or Coriant that satisfies their service provider customers' growing desire to converge routing and optical functions.
"In our view, only Infinera and Ciena agreements would be materially positive and even then only if they extended beyond a broad co-development agreement," wrote Jeffrey. "With Ciena having just signed an agreement with Ericsson (albeit nonexclusive), the options seem relatively limited to us."
In related news, reports have emerged that Nokia is considering a bid to acquire Juniper as a way to strengthen its presence in the U.S. network equipment market. According to a report in Germany's Manager Magazin Online, NSN CEO Rajev Suri traveled to the U.S. late last year to discuss the deal with Juniper's management. However, an unnamed source familiar with NSN told Reuters that no such deal was imminent.
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