Juniper Targeted by Activist Hedge Fund Elliott Management

Jan 13, 2014 6:53 pm ET

(Updates with Juniper statement in eighth paragraph.)

Jan. 13 (Bloomberg) -- Juniper Networks Inc. has been targeted by activist hedge fund Elliott Management Corp., which will seek cost cuts, stock buybacks and other changes at the networking-gear maker.

Elliott, a New York fund run by billionaire Paul Singer, has amassed 6.2 percent of Juniper, according to a statement today. The firm is seeking talks with management and the company’s board.

Shares of Juniper, the second-largest maker of computer- networking equipment, have trailed the Standard & Poor’s 500 Index over the past three years. The Sunnyvale, California-based company also faces a management transition: Chief Executive Officer Shaygan Kheradpir took over just this month, following the retirement of Kevin Johnson.

“Juniper’s new CEO along with its existing management team and board have a unique opportunity to immediately unlock significant value at the company,” Jesse Cohn, portfolio manager at Elliott, said in the statement.

To increase the stock price, Elliott is pushing for additional share repurchases and the payment of a dividend. The fund, which may disclose its Juniper holdings in regulatory filings today, also has proposals to cut expenses and streamline the company’s products. The goal would be to boost the shares to $35 to $40 a share, up as much as 70 percent from their closing price of $23.54 on Jan. 10, the last trading day before Elliott’s announcement.

Opinions Welcome

“Juniper welcomes the opinions and insights of its shareholders and is always open to constructive input toward the goal of enhancing shareholder value,” Cindy Ta, a spokeswoman for the company, said in an e-mailed response.

Juniper shares jumped 7.6 percent to $25.32 at the close in New York, their biggest gain since July 2012.

The company said it received Elliott’s presentation today and hasn’t yet held discussions regarding the proposals. Juniper said it has returned about $1.7 billion to shareholders over the last three years.

Juniper and rivals such as Cisco Systems Inc. have been grappling with a shift in the industry toward using more software for handling networking tasks instead of just hardware such as routers and switches. In October, Juniper forecast fourth-quarter revenue that was lower than analysts were predicting, and sales growth has slowed from 23 percent in 2010 to an estimated 6 percent last year, according to data compiled by Bloomberg.

Cost Recommendations

The company could cut $200 million in annual operating costs and buy back $2.5 billion in stock immediately and an additional $1 billion in 2015, Elliott said in a presentation of its proposals. Juniper should also review its security and switching businesses to streamline products, and “focus on projects and areas where Juniper has clear competencies and the greatest risk-adjusted return on investment,” Elliott said.

Faced with slowing revenue growth, Cisco initiated a quarterly investor payout of 6 cents a share in March 2011. Its dividend now stands at 17 cents.

Juniper’s $3 billion in cash and investments equaled about 25 percent of the company’s market value before the gain in the stock today, said Brian Marshall, an analyst at ISI Group. Marshall, who rates Juniper a strong buy, said that is about double the average of companies he covers.

Activist investors like Elliott typically run campaigns that pressure management and directors to make changes to boost shareholder gains. Elliott’s targeting of Juniper follows a takeover offer last week for another networking company, Riverbed Technology Inc. On Jan. 8, the fund offered to buy Riverbed for $19 a share, valuing the business at $3.08 billion. Elliott said it made the proposal in hopes that it would elicit other acquisition bids.

Compuware Agreement

Elliott also reached a standstill agreement last week with Compuware Corp., which spurned a takeover bid from the firm last year. As part of that accord, Elliott will nominate two directors, giving it more clout at the technology company.

Juniper, which ranks second to Cisco in the networking market, returned to profit growth in 2013 following two years of declines. The shares were already trading at their highest level in 22 months before Elliott’s announcement, bolstered by options buying last week.

--Editors: Nick Turner, John Lear