Today Elliot Management disclosed it owns 6.2% of Juniper Networks and in a very detailed SEC filing, outlined its desire for Juniper to implement 1) $200M in cost reductions, 2) $3.5B in capital returns to shareholders in buybacks and initiating an ongoing dividend, and 3) production optimization including reviews of the security and switching businesses, which have been generally disappointing in the past couple of years. Given the relative underperformance of Juniper stock over the past few years, its higher relative cost structure as compared to other companies in the networking industry and its strong cash position and cash flow generation, Elliot’s investment and objectives are not that shocking to me.
Elliot’s investment in Juniper is yet another example how activist investors are becoming more emboldened to invest in technology companies and seeking material change in either strategy, management and/or capital returns to shareholders. I wrote about this trend in topic in a prior blog post, and I continue to expect activist investors to increase their investment in the technology sector. Recent activist investment successes in technology investments (e.g. Microsoft, Apple, Dell, Yahoo, NetApp etc.), increasing fund flows into activist funds, the overall underperformance of mature technology companies vs. the overall market (e.g. the IT sector has under-performed the overall S&P 500 in each of the past four years) and the relative cash rich nature of the technology industry vs. other sectors are all likely to continue to drive activist funds to evaluate and potentially invest in technology companies.
The Juniper situation is also very interesting given the recent changes to the senior management team and the current composition of the board of directors. The company’s new CEO, Shaygan Kheradpir, officially started in his new role on January 1st and Bob Muglia, prior EVP of Software Solutions and a direct report to the CEO position, left the company in December of 2013 shortly after the new CEO was announced. It should be noted that Shaygan Kheradpir has not been a CEO in the past. The departure of Bob Muglia was not a material surprise to me given he was recruited to the company by prior CEO Kevin Johnson as both executives worked together at Microsoft in the past. I would not be surprised to also see Gerri Elliot, current EVP Chief Customer Officer and a direct report to the CEO, also depart from Juniper in the future, as she was also recruited from Microsoft by prior CEO Kevin Johnson. Jim Duffy of Network World recently wrote about the “ending of the Microsoft Era” at Juniper in a blog post.
Elliot’s timing on this investment is also interesting when one looks at the current Board structure and the fact that Juniper usually has its annual shareholder meeting where shareholders vote for directors in May of each year. While the press has written often how the new CEO of Microsoft will have to deal with two former CEOs on the Microsoft board, Shaygan Kheradpir (CEO of Juniper) has two former CEOs (Kevin Johnson and Scott Kriens) and the founder (Pradeep Sindhu) on the Juniper board. I would not be surprised if Kevin Johnson decides not to seek re-election in the upcoming May board meeting given his recent retirement from the company as CEO. It will be interesting to see the dynamics between Elliot and Juniper over the next few months leading up to the shareholder meeting.