Viavi Solutions’ Activist Sandell Ups Stake, Threatens Proxy

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Viavi Solutions Inc., the network-testing equipment seller formerly known as JDS Uniphase Corp., is facing increasing pressure from activist Sandell Asset Management Corp., which has raised its stake in the company and is now threatening a proxy fight.

The hedge fund run by Thomas Sandell has publicly agitated for changes at the former JDS Uniphase since October. The company completed a planned spinoff of its optical-components business into Lumentum Holdings Inc. on Aug. 1, and renamed itself Viavi, which owns a telecom network test-and-measurement unit and an anti-counterfeiting solutions business.

In a letter Tuesday, Sandell said it now owns about 5.1 percent of Viavi and urged the company to “conduct a dispassionate review of strategic alternatives,” including options for each business as well as an outright sale of the whole company. Sandell referred to previous failed settlement talks, noting that certain conditions the company sought in those discussions were “far from standard and in fact highly offensive.”

The most lucrative path for shareholders may be to sell the remaining two businesses and transform the listed shell into a platform business, according to the letter. That company could then acquire other profitable enterprises and benefit from Viavi’s tax advantages related to billions in accumulated losses, Sandell said.

Jarden, Nomad

Sandell highlighted public “platforms” that are successfully rolling up acquisitions without Viavi’s added tax advantages -- Jarden Corp., Platform Specialty Products Corp. and Nomad Foods Ltd. The latter two count activist Bill Ackman’s Pershing Square Capital Management as investors.

In a series of announcements Aug. 11, Viavi said Chief Executive Officer Thomas Waechter had left and Chairman Richard Belluzzo would run the company until a new CEO was named. It also said it was searching for two new board directors.

Sandell urged Viavi to thoughtfully hire new management, an independent financial adviser and an operational consulting firm “capable of extracting value from the company’s deferred tax assets.” Viavi has about $4.5 billion worth of federal operating losses that could offset tax on profitable acquisitions.

“We are astonished by the company’s apparent failure to understand the potential value of such tax assets,” Sandell wrote. Recent comments by Belluzzo don’t “exactly suggest a robust grasp of the topic nor an urgency to address it.”

‘Costly’ Battle

The activist said it’s prepared to nominate a rival board slate ahead of the annual meeting expected in December, when all directors face a vote, and is seeking an “amicable resolution that would avoid the need to embark upon a costly, distracting, and no doubt highly contentious proxy battle.”

Noel Bilodeau, a representative for Viavi, declined to comment about Sandell’s latest campaign.

Created in 1999 through the $7.05 billion merger of two companies, Uniphase Corp. and Canada’s JDS Fitel Inc., JDS Uniphase at the time became the biggest maker of components for the fiber-optic equipment used in telecommunications networks.

Founded in 1998, Sandell Asset’s recent campaigns include Ethan Allen Interiors Inc., Brookdale Senior Living Inc. and SemGroup Corp. The activist won four board seats in a proxy contest at Bob Evans Farms Inc.

Activist investors acquire equity stakes in publicly traded companies and agitate executives and directors to make changes they believe will boost shareholder returns.

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