Juniper Bows to Elliott Pressure, Plans $2 Billion Buyback
Juniper Networks Inc. (JNPR), bowing to pressure from activist hedge funds Elliott Management Corp. and Jana Partners LLC, announced plans to return at least $3 billion to shareholders and cut $160 million in expenses.
The plan includes purchasing more than $2 billion of shares through the first quarter of 2015 and paying a dividend of 10 cents a share starting in the third quarter of this year, the Sunnyvale, California-based company said yesterday in a statement.
The restructuring is being led by newly appointed Chief Executive Officer Shaygan Kheradpir, who was on the job less than a month before Elliott, run by billionaire Paul Singer, said in January that it had amassed a 6.2 percent stake in Juniper and demanded changes. The moves announced yesterday were part of an agreement with Elliott.
“Juniper’s new CEO did exactly what he needed to do,” Brian Marshall, an analyst at ISI Group in San Francisco. The plan takes care of most of Elliott’s demands, according to Marshall, who recommends buying the shares.
The payout to shareholders will occur over the next three years. Juniper will also add two independent board members, and former CEO Kevin Johnson will retire from the board at the end of February.
The shares of Juniper climbed 2 percent to $27.95 at the close in in New York, leaving them up 31 percent in the last year, compared with a 22 percent rise in the Standard & Poor’s 500 Index.
The announcement is a victory for Elliott as the firm steps up pressure on technology companies it views as undervalued and in need of changes. Other targets have included NetApp Inc., BMC Software Inc., Compuware Corp. and Riverbed Technology Inc., which last month rejected a $3.08 billion takeover offer from Elliott.
Juniper was facing a Feb. 23 deadline for investors to nominate board candidates, and Elliott had said it assembled a slate of nominees should Juniper balk at its proposals. Elliott said on Feb. 3 that it had the “overwhelming” support of investors for its plan.
“Elliott is highly optimistic about the company’s future and looks forward to supporting Juniper in its continued focus on creating shareholder value,” Jesse Cohn, a money manager at New York-based Elliott, said in the statement.
The two board nominees Juniper proposed are Gary Daichendt and Kevin DeNuccio, both former executives at Cisco Systems Inc., Juniper’s biggest competitor. Earlier this month, DeNuccio was named CEO of flash-memory storage maker Violin Memory Inc., a company that’s under pressure from activist shareholder Clinton Group Inc.
Juniper is benefiting from rising demand from telecommunications companies, which provide about 60 percent of the company’s revenue and are upgrading networks to handle increased data traffic from smartphones and tablets.
The company’s spending on research and development and difficulties in businesses such as cybersecurity made it a target for activists. Juniper’s research budget, long promoted as a competitive advantage, will shrink as a result of the restructuring.
On a conference call yesterday, Kheradpir said that research spending would fall over time as a part of overall costs and that general administrative jobs would be cut. Juniper said it will reduce annual operating expenses by $160 million by the first three months of next year. Its operating profit margin will expand to 25 percent for 2015 from 19.2 percent in 2013, the company said.
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