Elliott Signals Proxy Fight Against Juniper Networks

Elliott Signals Proxy Fight Against Juniper Networks
By World Economic Forum (Flickr: The Global Financial Context: Paul Singer) [CC BY-SA 2.0], via Wikimedia Commons

Elliott Management, the activist hedge fund controlled by Paul Singer, signaled its intention to launch a proxy fight against computer-networking company, Juniper Networks, Inc. (NYSE:JNPR) in its statement today.

Overwhelming support

According to the activist hedge fund, it received overwhelming support from the shareholders of Juniper Networks, Inc. (NYSE:JNPR), sell-side analysts, and the broad investing community regarding its recommendations to boost shareholders value.

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Elliott’s portfolio manager, Jesse Cohn said, “When we set out to suggest a plan for Juniper, we talked with fellow shareholders and leading analysts to develop a reasonable set of steps that could generate tremendous value. We also recruited a team of leading executives who are excited about Juniper and who have the operational skills and deep industry experience to help ensure that the Shareholder Value Plan becomes a reality.”

Based on Cohn’s statement, Elliott has a list of executives to be nominated to serve as members of the board of directors of Juniper Networks, Inc. (NYSE:JNPR), if the company will not take appropriate actions to its recommendations.

Prefers working collaboratively with Juniper

According to Cohn, Elliott is committed to pursuing its recommended plan to boost shareholder value and make it a reality. He said, “We remain open to all paths to ensure its implementation. We have been pleased with our dialogue with the company.”

He added that Elliott was encouraged with the decision of Shaygan Kheradpir, the new CEO of Juniper Networks, Inc. (NYSE:JNPR) to position himself as a “change agent.”

Furthermore, Cohn emphasized that Elliott prefers to work collaboratively with the computer-networking company to achieve to achieve the goal of implementing a plan that is fully consistent with the value-maximizing steps outlines in the Shareholder Value Plan.

Elliott’s recommendations

Elliott owns a 6.2% stake in Juniper Networks, Inc. (NYSE:JNPR).  The activist hedge fund believed that the stock price of the computer-networking company “severely and consistently under-performed the market and its peers” due to outsized cost structure, inefficient capital structure, poor M&A track record, and execution issues.

The activist hedge fund recommended several strategies for the management of Juniper Networks, Inc. (NYSE:JNPR) to be able to deliver long-term value to shareholders such as cost realignment by reducing its run-rate operating expense and a $3.5 capital return ($2.5 billion immediate stock buyback and $1.5 billion stock buyback in 2015) and an ongoing commitment to return 50% free cash flow.

Elliott is not alone in its battle against Juniper. JANA Partners also wants changes at the company. In the company’s Q4 letter, which was reviewed by ValueWalk, the hedge fund states:

A large capital return program should be an immediate priority, and coupled with the introduction of a meaningful dividend, would help address concerns about capital allocation. Management compensation is misaligned with shareholder returns; incentives should be recast to map against returns on capital and total shareholder return, rather than the nebulous objectives that have led to an unfocused product line up, a lazy balance sheet and share price underperformance. We believe the board would benefit from the addition of new directors with a fresh perspective.

Juniper’s response

Juniper Networks, Inc. (NYSE:JNPR) recently responded that it will review the presentation submitted by Elliott. The company also emphasized that it has a “proven record of generating and returning cash to shareholders.”

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