According to a recent filing with the Securities and Exchange Commission, Tom Sandell has increased his stake in Viavi Solutions Inc (NASDAQ:VIAV), formerly JDS Uniphase Corporation, to approximately 12.0 million shares from the 1.77 million shares his fund Sandell Asset Management last reported holding. The updated position includes options to purchase an additional 6.0 million shares of common stock, as well as 375,536 shares referenced in cash-settled equity swaps. The move gives Sandell control over 5.1% of the company’s common stock. In addition, Sandell Asset Management has sent a letter to the board of directors of Viavi Solutions Inc (NASDAQ:VIAV), seeking changes that would boost shareholder value.
After eight years at Bear Sterns, where he worked with Wall Street legend Ace Greenberg, Tom Sandell started his own fund in 1998. His investment targets include equity special situations, merger arbitrage, and corporate credit opportunities. Approximately 34% of his portfolio is occupied by financial stocks, followed by consumer discretionary at 22% and healthcare stocks at 19%. In a recent letter, Sandell lashed out at the management of Ethan Allen Interiors Inc. (NYSE:ETH), which he accused of having stalled negotiations with him over a slate of directors Sandell plans to nominate for that company’s board. Earlier in August, Sandell sent a letter to Ethan Allen Interiors urging its management to either recapitalize the company or seek potential buyers. Sandell Asset Management holds 1.57 million shares of Ethan Allen or 5.5% of the company’s common stock. The fund’s biggest equity position continues to be Bob Evans Farms Inc (NASDAQ:BOBE) at 1.88 million shares valued at $96.2 million according to the fund’s latest 13F filing, the position being unaltered during the second quarter.
Follow Tom Sandell's Sandell Asset Management
Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith (and money) in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 60 percentage points, returning 118% (read the details here). Follow the smart money into only their best investment ideas all while avoiding their high fees.
Hedge fund legend George Soros is also a fan of Viavi Solutions Inc (NASDAQ:VIAV), with his fund, Soros Fund Management, having reported ownership of 6.26 million shares valued at $72.5 million in its latest quarterly filing. Clint Carlson boosted his stake in the company by 17% during the second quarter to amass just over 6.3 million shares worth some $72.9 million.
Sandell Asset Management has been pushing for change at Viavi Solutions Inc (NASDAQ:VIAV) since last fall, which finally resulted in the company announcing the departure of Thomas Waechter, its Chief Executive Officer, on August 11. Tom Sandell has not stopped at that however, and is now pushing for an overhaul of the board of directors. He is also urging the company’s management to contract an operational consulting firm and a financial adviser to explore possible scenarios for value growth. Sandell has offered two alternatives himself: one which involves the sale of the company and another that would make good use of the company’s deferred tax assets. He argues shareholders would receive more than $10 per share should the company sell itself. Under the second scenario, the value of each Viavi share could climb higher than $12 per unit. Sandell suggests the company should sell its remaining two businesses and transform itself into a platform business. Citing the examples of Jarden Corp (NYSE:JAH) and Platform Specialty Products Corp (NYSE:PAH), he believes the company is in a great position to profit handsomely from its $4 billion to $4.5 billion in net operating losses accumulated over the years.
“From our settlement discussions, you should be aware that we have identified a number of truly outstanding candidates for the Board of Directors. Furthermore, we have made it very clear that the ultimate composition of the Board is but one component of what must be a sweeping improvement in the overall governance and management of the Company, which would include a thorough re-evaluation of the Company’s strategic alternatives, the retention of a new financial advisor and operational consulting firm, and the identification of a new management team capable of extracting value from the Company’s deferred tax assets relating to its multi-billion dollar balance of federal, state, and foreign net operating loss carryforwards (NOLs),” writes Sandell in the letter.
Viavi Solutions Inc (NASDAQ:VIAV) has a market cap of $1.27 billion and does not pay a dividend. So far this year, the stock has been trending downwards, losing approximately a third of its value along the way. For the thirteen weeks ending June 27, Viavi Solutions reported revenues of $427 million, down by 4.6% year-over-year, and a loss of $0.08 per share. Analysts expect the company to turn profitable in the current quarter, eyeing revenues of $212 million and earnings of $0.06 per share.
Disclosure: None
