Viavi shareholder wants company to shift strategy, consider sale

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Viavi Solutions, a test and measurement company, is facing pressure from shareholder Sandell Asset Management to alter its strategy and consider a possible sale.

Sandell said in a public letter to the vendor that Viavi’s share price undervalues the company and it needs to take steps to realize its potential.

The group suggested that Viavi could consider various options, including a sale of selling the vendor’s service enablement (SE) business unit, starting a share repurchase program, adding new board members to speed a strategic review and considering a takeover by private equity investors. 

Although Viavi stopped reporting individual network enablement (NE) and SE segment operating income in fiscal 2016, Sandell pointed out that the SE segment generated operating losses of $3.9 million, $25.6 million, and $18 million in fiscal 2013, 2014, and 2015, respectively. 

Viavi built the SE segment via various acquisitions totaling nearly $500 million. During the past few years, Viavi purchased four related companies: Agilent’s network solutions business, Arieso, Trendium, and Network Instruments.

However, Sandell said that “the SE segment has been a tremendous drag on the Company’s overall profitability, and the entire NSE business unit reported a truly abysmal operating margin of 1.9% in Fiscal 2016 due to the damage wrought by the SE segment.”

Sandell suggested that by selling the SE segment, Viavi could cut costs on an unprofitable business.

“Based on our discussions, there is the strong opinion that the Company should immediately seek the sale of this business segment, either as individual sub-segments or as a whole, and end this perennial hemorrhaging of cash,” Sandell said.

Oleg Khaykin, Viavi’s CEO shot back at Sandell in a public letter, saying the company was already working on many of the issues raised in order to enhance shareholder value. This includes selling its share in Lumentum, a $100 million share buyback, optimizing its convertible debt structure and returning the SE business to profitability. 

“As we look ahead to Fiscal 2017 and beyond, we plan to continue to reduce our business complexity, improve quality of our revenues, reduce costs and continue to grow our operating profit,” Khaykin said. “Specifically, we have publicly identified the SE segment of our business as an area of intense management focus and are working in a methodical and responsible way to improve its financial performance, while preserving the value of the assets.”

Viavi isn’t the only company that’s faced shareholder pressure in recent years to restructure.

Juniper faced similar pressure in 2014 when activist shareholder Elliot Management asked the vendor to reduce costs and return more money to shareholders, for example.

For more:
- read the Sandell letter
- read the Viavi letter

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