Juniper Networks announced a corporate restructuring aimed at "enhancing its operational efficiency, returning capital to shareholders, refocusing on strategic opportunities and reinvigorating its culture." The plan has the support of Elliot Management, an outside investment firm that has been lobbying for changes at Juniper.
Juniper said it plans to refocus on "innovation that matters most to service providers and enterprises where demand for High-IQ Networks and best-in-class cloud environments are driving growth.
- Juniper will capitalized on its engineering expertise across routing, switching, security, control and network management
- The focus is on being a leading provider of secure High-IQ Networks and serving the needs of Cloud Builders.
- Juniper will create a more focused, connected, agile and execution-oriented company structure driven to deliver on its customers' imperatives for High-IQ Networks and cloud environments.
- The company will streamline its operations and business portfolio.
- Juniper said is aiming for a substantial structural reduction to the cost base and a significantly increased operating margin profile through highly detailed and executable actions with directed accountability.
- The Company expects to exit the first quarter of 2015 with annualized operating expense savings of $160 million from the Q4 2013 level and achieve an operating margin of 25% for 2015 -- an approximate 580 basis point improvement from 2013 -- with operating expenses of 39% of revenue.
- Juniper will return a minimum of $3 billion to shareholders over the next three years through a combination of share repurchases and dividends.
- As part of this plan, the board of directors has authorized $2 billion in share repurchases to be executed through the end of the first quarter of 2015, including $1.2 billion through an accelerated share repurchase program to be entered into shortly.
- Juniper will also initiate a quarterly cash dividend of $0.10 per share of common stock beginning in the third quarter of 2014, with the expectation to increase the dividend over time.
- Kevin Johnson will retire from the Juniper Board at the end of February 2014.
Juniper also noted that it has support from Elliott Management, which has agreed among various customary terms, to support the company's restructuring and will vote in favor of Juniper's nominees at its 2014 Annual Meeting of Stockholders.
"The cornerstone of our IOP (integrated operating plan) is the belief that our customers, which include some of the world's largest service providers, financial services companies and government agencies, are increasingly building hyper-scale, resilient, secure, highly intelligent, open and virtualized networks," stated Shaygan Kheradpir, chief executive officer of Juniper Networks. "As a pure-play, high-performance networking company with engineering and organic innovation at its core, I believe Juniper is uniquely positioned to help these customers address their rapidly evolving networking needs. Our new, sharpened focus will bring us closer to our customers as we innovate together to address the opportunities ahead, and will enable us to operate much more efficiently as One-Juniper."
In an SEC Schedule 13D and presentation, Elliot called for a number of value-accretive steps, including cost realignment, capital return to shareholders, and the optimization of Juniper’s product portfolio. Elliot believes its initiatives can collectively result in a stock price of $35-$40 per share, which is up to 70% above the current price.
Key points include:
- Cost Realignment: $200M run-rate reduction in operating expenses from 2013 level.
- Capital Return: $3.5B share repurchase program comprised of an immediate $2.5B stock repurchase, a $1.0B repurchase in 2015 and an ongoing commitment to return 50% of free cash flow (including a $0.125/share quarterly dividend)
- Product Portfolio Optimization: Review of the security and switching businesses to streamline Juniper’s product portfolio to focus on projects and areas where Juniper has clear competencies and the greatest risk-adjusted return on investment.
Kheradpir joins Juniper Networks from Barclays PLC, where he served as the chief operations and technology officer, and as a member of its executive committee. Prior to joining Barclays, he was executive vice president and chief information and technology officer at Verizon Communications. He holds a bachelor's, master's, and Ph.D. in electrical engineering from Cornell University.