Juniper Networks (NYSE: JNPR) is facing pressure from activist shareholder Elliot Management, which wants the vendor to reduce costs and return more money to shareholders, according to a SEC filing.
Elliot said that the vendor's shares have underperformed due to what it says is an "outsized cost structure, inefficient capital structure, poor M&A track record and execution issues caused by unsuccessful extensions into security and enterprise switching."
It recommends that Juniper should launch a program to reduce annual costs by $200 million, repurchase $3.5 billion in shares by the end of 2015, return 50 percent of free cash flow to shareholders and streamline its portfolio, including a review of its security and switching units.
Juniper said in a prepared statement that it has received Elliot's presentation but has not talked to the firm yet.
The vendor defended its record, noting that it has achieved five "consecutive quarters of year-over-year revenue growth and our continued efforts to streamline the Company's cost base" and that it returned about 105 percent of its free cash flow to shareholders in the last three years.
Juniper is not shy about cutting costs. Despite reporting that Q3 revenue rose 6 percent, the vendor cut 280 employees as a way to keep costs in control.
Stuart Jeffrey, a Nomura equity analyst, said that a number of Elliot's suggestions, such as better OPEX execution, share count reduction and better operational focus, are not new and appear to be "short-term in nature."
Halting Juniper's M&A strategy is one of Nomura's key concerns. One of the key gaps that Juniper needs to fill to be a more formidable challenger to Alcatel-Lucent (NYSE: ALU), Cisco (Nasdaq: CSCO) and Huawei is an optical play.
"Halting M&A would limit Juniper's strategic options in the routing segment," Jeffrey wrote. "One emerging trend in routing is IP Routing/Optical convergence. Among the routing players (Cisco, Alcatel and Huawei), Juniper is the weakest vendor in the optical market. Given this dynamic, it may require acquisition to close the technology gap, which would be tougher to do under Elliott's proposal."
Elliot's proposal comes at a transitional time for the company. Shaygan Kheradpir just took over the CEO reins on Jan. 1 from Kevin Johnson, who previously announced he would retire from the company. The company will report Q4 2013 earnings on Jan. 23.
- here's Elliot's presentation (.pdf)
- and Juniper's statement
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Updated article with correct date of when Kheradpir became CEO of Juniper.