The hedge fund that’s pressuring Riverbed set its sights on Juniper with an SEC filing Monday morning.
Elliott Management is insisting Juniper rein in costs; start a share repurchase program and a dividend; and revamp its product lineup. Elliott also calls out Juniper for its “poor M&A track record” and its “unsuccessful extensions into security and enterprise switching.”
Juniper shares were up $1.91 (8.1%) at $25.45 by midday.
Hedge funds typically announce such activism in an SEC Schedule 13D, a form for listing ownership of a stock. Often, they’ll append the 13D with a letter to the company’s board that airs grievances. Not coincidentally, those complaints then become public.
Elliott’s primary target is the stock price, of course. During the last three years, the percentagewise growth of Juniper’s share price was half that of the Nasdaq Composite, according to Elliott.
Elliott, owned by billionaire Paul Singer, does this sort of thing all the time. Last week, Elliott made a $3.1 billion bid to acquire Riverbed, a move that’s likely intended to spur a larger bid from someone else. (It’s tempting to suggest Juniper just acquire Riverbed — but that would run counter to Elliott’s complaints, as we note below.)
Another previous Elliott target was Brocade. In its presentation, Elliott claims to have “played a significant role” in changing Brocade’s management, including the hiring of CEO Lloyd Carney last year.
Elliott owns roughly 31 million shares of Juniper, amounting to about 6.2 percent of the company, according Monday’s SEC filing.
Elliott’s Grand Plan for Juniper
Elliott Portfolio Manager Jesse Cohn, whose name goes on all these 13D letters, claims in the press release that Elliott’s plan could take Juniper shares to $35 to $40.
First, Elliott wants Juniper to reduce operating expenses by $200 million a year, largely by trimming R&D. Citing various reports, Elliott claims Juniper spends more on R&D than its peers, whether measured as a percentage of revenue or on a per-employee basis. Elliott also cites a study by Glassdoor saying Juniper’s average base salary for software engineers is the highest in the industry, at $159,900. (The study puts LinkedIn second with $136,427, Yahoo third with $130,312, and Google fourth at $127,143.)
For a dividend, Elliott suggests one-eighth of a cent per share, supplemented by a $3.5 billion share repurchase program, $2.5 billion of which would be executed this year.
On the product side, Elliott considers the Netscreen acquisition to have stalled and singles out QFabric as having been “overpromised and underdelivered” after more than $100 million and two years invested.
Elliott also contends Juniper’s acquisition record has been spotty. But roughly half the deals it lists, and all four acquisitions it calls out for having products discontinued, are from 2005 or earlier — a time with different management at Juniper and a different economic environment. And while Elliott criticizes Juniper for making $7 billion in acquisitions (that’s over Juniper’s 13-year lifetime), more than half of that is taken up by the $4 billion Netscreen deal.
Elliott’s point is that Juniper has tried too hard to branch out into other businesses, and that the router franchise has suffered as a result. Edge routers have lost share to Alcatel-Lucent and Huawei, and the core-router business appears to have ceded some ground to Cisco, according to Infonetics numbers cited by Elliott. (On the core-router side, market share tends to shift depending on who’s released a product most recently, so it’s harder to get a smoking gun there.)