Viavi reaches truce with dissident shareholder

Test and measurement systems developer Viavi Solutions Inc. (NASDAQ: VIAV) says it has reached a truce agreement with activist shareholder Sandell Asset Management Corp., who have been vocal in both their disapproval of management's efforts to increase shareholder value and offering of suggestions for what should be done instead. The agreement will result in the addition of two new members to Viavi's board, both of whom will sit on a "repurposed" Corporate Development Committee, pending shareholder approval.

Sandell, which owns approximately 5.1% of Viavi's outstanding shares, has been a thorn in the side of senior management going back to at least the point when JDSU announced it would split into two companies, including Viavi (see "JDSU management details split, M&A possibilities"). Sandell strongly urged JDSU management to pursue a sale of the Communications and Commercial Optical Products (CCOP) business unit, which later became Lumentum. It then accused management of gaming the system to avoid having alternative board members likely to implement their suggestion considered for election at the subsequent annual meeting of shareholders (see "JDSU dismisses investor demand to sell CCOP").

Undaunted by the split, Sandell has continued to lobby for changes in Viavi's strategy. The most recent suggestion calls (in addition to replacing senior management and reshaping the board) for the company to sell its two remaining business units, and then possibly transform itself into a "tax-advantaged platform company" that would buy other profitable businesses and benefit from Viavi's accumulated losses.

Sandell said it was prepared to once again offer a competing slate of board candidates at the next annual shareholders meeting, November 17, 2015, if Viavi management wouldn't show willingness to seriously consider its strategies. And Viavi management appears to have done just that.

The agreement with Sandell calls for Donald Colvin and Tor Braham to be appointed to Viavi's board and nominated for election at the next annual meeting. Colvin and Braham will then join current board members Masood Jabbar and Timothy Campos on the Corporate Development Committee. That committee will examine a variety of means to increase shareholder value via a review of Viavi's business, financial position, capital allocation, investment and business strategies, and strategies to maximize the value of the company's deferred tax assets. The committee will hire an independent investment banking firm to assist in this review; meanwhile, an operational consulting firm will be hired to assess the company's internal expense and operational structure.

Colvin was CFO of Caesars Entertainment Corp. from November 2012 to January 2015. Prior to that served as executive vice president and CFO of ON Semiconductor Corp. Braham was managing director and global head, technology, mergers, and acquisitions for Deutsche Bank Securities from 2004 until 2012. He joined Deutsche Bank after serving as managing director and co-head, West Coast U.S. technology, mergers, and acquisitions for Credit Suisse First Boston.

Viavi management also said that it will resume a share repurchase program that was approximately $40 million short of its $100 million goal when it was suspended. Further, the company will propose new equity compensation arrangements based on stock price appreciation as adjusted for share repurchases and dividends.

In exchange for these concessions, Sandell has pledged to vote its shares in favor of Viavi's existing and new directors at the 2015 annual meeting and abide by "certain standstill provisions" prior to the 2016 annual meeting.

"We are pleased that we were able to engage in productive dialogue and work constructively with Viavi to avoid a protracted proxy contest and we are very encouraged by the board's commitment to enhancing shareholder value through a comprehensive review of the company's business," said Thomas Sandell, CEO of Sandell Asset Management. "We are confident that the new directors will bring valuable experience to the Board and will work with the other board members and management to enhance the value of Viavi's attractive assets."

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