Viavi Solutions (VIAV) Issues Response to Sandell Letter; Will Not Comment on M&A Speculation
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Viavi Solutions Inc. (NASDAQ: VIAV) responds to open letter from Sandell Asset Management.
Mr. Thomas SandellChief Executive OfficerSandell Castlerigg Investments540 Madison Ave., 36th FloorNew York, NY 10022
I received your public letter dated August 16. We have had a number of communications with you and members of your firm since I joined. Viavi and I always appreciate our individual shareholders' points of view. While we may disagree with your tactics and approach, we are aligned on a number of opportunities to further improve shareholder value. In fact, many of your recommendations are already in process and in-line with the themes we have been communicating to our investors and analysts through investor meetings and earnings calls. In this letter, I would like to take an opportunity to reiterate to you and the public our perspective.
To start with, I would like to highlight the accomplishments of this Board of Directors and management team during the past 12 months:
1. Successfully spun-off Lumentum to shareholders. Contrary to the advocated sale of CCOP to private equity ("PE") investors, the spin-off of the CCOP business segment to form Lumentum has created substantially more shareholder value.
2. Successfully reconstituted the remaining business of JDSU as Viavi Solutions, expanded board of directors to include two additional directors with deep financial and capital markets expertise, and recruited a new CEO and CFO. In the past 12 months, we have significantly improved Viavi's performance:
- Grew Revenue by about 4%.
- Grew non-GAAP operating profit by 70%.
- Expanded non-GAAP operating margins by 500 basis points.
- Grew non-GAAP EPS by 100%; and
- Significantly outperformed the S&P 500 and NASDAQ Telecom Index (IXTC) during the past 12 months with Viavi up 40%, S&P 500 up 8% and IXTC up 7%.
These improvements have all been achieved through methodical and focused operational execution. (A reconciliation of non-GAAP measures to the corresponding GAAP measure is available at the end of this letter.)
3. Launched optimization of our capital structure through three important initiatives:
- Successfully monetizing our Lumentum stake: To date we have sold 6.7 million shares of Lumentum for net proceeds of $166 million; the remaining 5 million shares are valued at approximately $170 million.
- Returning capital to our shareholders: We authorized the repurchase of an additional $100 million in shares on top of the $40 million accelerated share repurchase per our settlement agreement with you in 2015. Contrary to your assertion, our commitment to repurchase $100 million of shares is not cosmetic.
- Retiring and/or restructuring of $650 million outstanding convertible debt. We note that the true carrying value of our debt is $650 million, not $588 million as you suggest in your letter.
As we have mentioned in our earnings calls and numerous shareholder communications, we are in the process of a comprehensive strategy review of our current business. The objective is to position Viavi for continued profitable growth. 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. 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.
Further, while we do not as a matter of policy comment on M&A activities or rumors - in fact, any public reference to the sale of any business unit may detrimentally impact its performance and actually destroy shareholder value - I can assure you that our Board is focused on maximizing shareholder value and is acutely aware of their fiduciary duties.
As you can see, our previously communicated strategy substantially overlaps with many of the concerns you raised in your letter. We will continue to focus on sharpening the Company's competitive position and building shareholder value. Finally, I would reiterate that we welcome constructive input from all of our shareholders and consequently look forward to continuing our ongoing discussions with you.
We will be holding an analyst day on September 15 where we will provide further detail on our strategy, financial guidance and capital allocation model, including debt restructuring and stock repurchases.
Oleg Khaykin Chief Executive Officer
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