0000902664-15-003531.txt : 20150901 0000902664-15-003531.hdr.sgml : 20150901 20150901100745 ACCESSION NUMBER: 0000902664-15-003531 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20150901 DATE AS OF CHANGE: 20150901 GROUP MEMBERS: SANDELL INVESTMENT SERVICES, LLC. GROUP MEMBERS: THOMAS E. SANDELL SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: VIAVI SOLUTIONS INC. CENTRAL INDEX KEY: 0000912093 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942579683 STATE OF INCORPORATION: DE FISCAL YEAR END: 0627 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-44729 FILM NUMBER: 151086459 BUSINESS ADDRESS: STREET 1: 430 NORTH MCCARTHY BOULEVARD CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4084043600 MAIL ADDRESS: STREET 1: 430 NORTH MCCARTHY BOULEVARD CITY: MILPITAS STATE: CA ZIP: 95035 FORMER COMPANY: FORMER CONFORMED NAME: JDS UNIPHASE CORP /CA/ DATE OF NAME CHANGE: 19990713 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SANDELL ASSET MANAGEMENT CORP CENTRAL INDEX KEY: 0001140474 IRS NUMBER: 000000000 STATE OF INCORPORATION: E9 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 540 MADISON AVENUE STREET 2: 36TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2126035700 MAIL ADDRESS: STREET 1: 540 MADISON AVENUE STREET 2: 36TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 SC 13D 1 p15-1818sc13d.htm VIAVI SOLUTIONS INC.

 

SECURITIES AND EXCHANGE COMMISSION  
Washington, D.C. 20549  
   
SCHEDULE 13D
 
Under the Securities Exchange Act of 1934
(Amendment No. )*
 

Viavi Solutions Inc.

(Name of Issuer)
 

Common Stock, $0.001 par value

(Title of Class of Securities)
 

925550105

(CUSIP Number)
 
 

Marc Weingarten, Esq.

Eleazer Klein, Esq.

Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York 10022

(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
 

August 25, 2015

(Date of Event Which Requires Filing of This Statement)
 

 

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), Rule 13d-1(f) or Rule 13d-1(g), check the following box. [ ]

 

(Page 1 of 11 Pages)

______________________________

* The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

 

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

 

  CUSIP No. 925550105SCHEDULE 13D Page 2 of 11 Pages

 

 

 

 

1

NAME OF REPORTING PERSONS

Sandell Asset Management Corp.

2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a) ¨

(b) ¨

3 SEC USE ONLY

4

SOURCE OF FUNDS

AF

5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) ¨
6

CITIZENSHIP OR PLACE OF ORGANIZATION

Cayman Islands

NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH		 7

SOLE VOTING POWER

0

8

SHARED VOTING POWER

10,314,164 shares of Common Stock (including options to purchase 5,243,900 shares of Common Stock)

9

SOLE DISPOSITIVE POWER

0

10

SHARED DISPOSITIVE POWER

10,314,164 shares of Common Stock (including options to purchase 5,243,900 shares of Common Stock)

11

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON

10,314,164 shares of Common Stock (including options to purchase 5,243,900 shares of Common Stock)

12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ¨
13

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) (see Item 5)

4.4% (see Item 5)

14

TYPE OF REPORTING PERSON

CO; IA

         

 

  CUSIP No. 925550105SCHEDULE 13D Page 3 of 11 Pages

 

1

NAME OF REPORTING PERSONS

Sandell Investment Services, L.L.C.

2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a) ¨

(b) ¨

3 SEC USE ONLY

4

SOURCE OF FUNDS

AF

5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) ¨
6

CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware

NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH		 7

SOLE VOTING POWER

0

8

SHARED VOTING POWER

1,688,136 shares of Common Stock (including options to purchase 758,400 shares of Common Stock and 375,536 shares referenced in cash-settled equity swaps)

9

SOLE DISPOSITIVE POWER

0

10

SHARED DISPOSITIVE POWER

1,688,136 shares of Common Stock (including options to purchase 758,400 shares of Common Stock and 375,536 shares referenced in cash-settled equity swaps)

11

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON

1,688,136 shares of Common Stock (including options to purchase 758,400 shares of Common Stock and 375,536 shares referenced in cash-settled equity swaps)

12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ¨
13

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) (see Item 5)

0.7% (see Item 5)

14

TYPE OF REPORTING PERSON

CO; IA

         

 

 

 

  CUSIP No. 925550105SCHEDULE 13D Page 4 of 11 Pages

 

1

NAME OF REPORTING PERSONS

Thomas E. Sandell

2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a) ¨

(b) ¨

3 SEC USE ONLY

4

SOURCE OF FUNDS

AF

5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) ¨
6

CITIZENSHIP OR PLACE OF ORGANIZATION

Sweden

NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH		 7

SOLE VOTING POWER

0

8

SHARED VOTING POWER

12,002,300 shares of Common Stock (including options to purchase 6,002,300 shares of Common Stock and 375,536 shares referenced in cash-settled equity swaps)

9

SOLE DISPOSITIVE POWER

0

10

SHARED DISPOSITIVE POWER

11,626,764 shares of Common Stock (including options to purchase 6,002,300 shares of Common Stock and 375,536 shares referenced in cash-settled equity swaps)

11

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON

12,002,300 shares of Common Stock (including options to purchase 6,002,300 shares of Common Stock and 375,536 shares referenced in cash-settled equity swaps)

12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ¨
13

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) (see Item 5)

5.1% (see Item 5)

14

TYPE OF REPORTING PERSON

IN

         

 

  CUSIP No. 925550105SCHEDULE 13D Page 5 of 11 Pages

 

Item 1. SECURITY AND ISSUER
   
    This statement relates to the shares of common stock, par value $0.001 per share (the “Common Stock”), of Viavi Solutions Inc., a Delaware corporation (the “Issuer”).  The Issuer’s principal executive offices are located at 430 North McCarthy Boulevard, Milpitas, CA 95035.

 

 

Item 2. IDENTITY AND BACKGROUND
   
(a)  This statement is filed by (i) Sandell Investment Services, L.L.C., a Delaware limited liability company (“SIS”), the investment manager to Merrill Lynch Investment Solutions SICAV, a société d’investissement à capital variable organized under the laws of the Grand-Duchy of Luxembourg acting for and on behalf of Merrill Lynch Investment Solutions – Castlerigg Equity Event and Arbitrage UCITS Fund (“MLIS”); (ii) Sandell Asset Management Corp., a Cayman Islands exempted company (“SAMC”), the investment manager to Castlerigg Master Investments, Ltd., a British Virgin Islands company (“Castlerigg Master Investment”), Castlerigg Active Investment Fund, Ltd., a British Virgin Islands company (“CAI Fund”), Castlerigg Equity Event and Arbitrage Fund, a series of ALTMFX Trust (“CEEAF”; and, together with MLIS, Castlerigg Master Investment and CAI Fund, the “Sandell Funds”), an investment company registered under section 8 of the Investment Company Act of 1940, as amended; and (iii) Thomas E. Sandell, a citizen of Sweden, who serves as Chief Executive Officer of SAMC (“Mr. Sandell” and, together with SIS and SAMC, the “Reporting Persons”), with respect to the shares of Common Stock held by the Funds.
 
(b)  The principal business address of SIS, SAMC and Mr. Sandell is 540 Madison Ave., 36th Floor, New York, New York 10022.
 
(c)  The principal business of SIS and SAMC is to provide investment management and advisory services to private individuals, institutions and the Sandell Funds.  The principal business of Mr. Sandell is to serve as Chief Executive Officer of SAMC and as Managing Member of SIS.  
 
(d)  None of the Reporting Persons nor any of the individuals set forth in Schedule A attached hereto has, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors).
 
(e)  None of the Reporting Persons nor any of the individuals set forth in Schedule A attached hereto has, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.
 
(f)  SAMC is a Cayman Islands exempted company.  SIS is a limited liability company incorporated in Delaware.  Mr. Sandell is a citizen of Sweden.
 
     The name, citizenship, present principal occupation or employment and business address of each director and executive officer, general partner or managing member, as applicable, of SIS and SAMC is set forth in Schedule A attached hereto.  To the best of the Reporting Persons’ knowledge, except as set forth in this statement on Schedule 13D, none of such entities or individuals owns any shares of Common Stock.

 

 

 

  CUSIP No. 925550105SCHEDULE 13D Page 6 of 11 Pages

 

Item 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
 
        The Reporting Persons used a total of approximately $33,675,000 (including brokerage commissions) in the aggregate to acquire the shares of Common Stock reported in this Schedule 13D.  Funds for the purchase of the Common Stock reported herein as beneficially held by the Reporting Persons were derived from available working capital of the Sandell Funds.

 

 

Item 4. PURPOSE OF TRANSACTION
   
         The Reporting Persons purchased the shares of Common Stock, and options reported in this Schedule 13D because they believe that the Issuer’s stock is trading at a discount to its intrinsic value.  The Reporting Persons believe that there are certain steps that the Issuer should undertake to unlock the intrinsic value of the Issuer’s stock, including improving the composition of the Board, thoroughly re-evaluating the Issuer's strategic alternatives, the retention of a new financial advisor and operational consulting firm, and identifying a new management team with the necessary experience to maximize the value of the Issuer’s deferred tax assets, such as its multi-billion dollar balance of federal net operating losses (NOLs).  The Reporting Persons also believe that the Issuer should transition into a tax-advantaged platform company, and that the review of strategic alternatives should include evaluation of the strategic alternatives for both the OSP and the NSE business, including their possible sale, as well as the possible sale of the Issuer’s business as a whole.  To effect these changes, the Reporting Persons are considering nominating a slate of qualified director candidates to stand for election at the Issuer’s 2015 annual meeting of shareholders, though the Reporting Persons would prefer to reach an amicable resolution with the Issuer’s current management and Board.  To that effect, the Reporting Persons have had and expect to continue to have discussions with the Issuer’s management and Board, other shareholders of the Issuer and other third parties regarding these matters, as well as relating to the Issuer’s business, operations, strategy, governance, board composition (including representation of the Reporting Persons), future plans and related matters.
 
          On September 1, 2015, SAMC sent a letter to the Issuer’s Board, and issued a press release disclosing the letter (the “September 1 Press Release”), in which SAMC outlined a number of actions it believes the Issuer should undertake in order to increase shareholder value, including the actions discussed above in this Item 4.  The foregoing summary of the September 1 Press Release is qualified in its entirety by reference to the full text of the September 1 Press Release, a copy of which is attached hereto as Exhibit 1 and is incorporated by reference herein.
 
         Except as set forth herein or such as would occur upon completion of any of the actions discussed herein, the Reporting Persons have no present plan or proposal that would relate to or result in any of the matters set forth in subparagraphs (a)–(j) of Item 4 of Schedule 13D.  The Reporting Persons intend to review their investment in the Issuer on a continuing basis.  Depending on various factors including, without limitation, the Issuer’s financial position and strategic direction, actions taken by the Board, price levels of the Common Stock, other investment opportunities available to the Reporting Persons, conditions in the securities market and general economic and industry conditions, the Reporting Persons may in the future take such actions with respect to their investment in the Issuer as they deem appropriate including, without limitation, purchasing additional shares of Common Stock and/or other securities of the Issuer (collectively, “Securities”), disposing of any or all of their Securities, in the open market or otherwise, at any time and from time to time, and engaging in any hedging or similar transactions with respect to the Securities.  The Reporting Persons reserve the right to change their intention with respect to any and all matters referred to in this Item 4 of this Schedule 13D.
 

 

  CUSIP No. 925550105SCHEDULE 13D Page 7 of 11 Pages

 

Item 5. INTEREST IN SECURITIES OF THE ISSUER
 
(a) – (b)    The aggregate number and percentage of shares of Common Stock to which this Schedule 13D relates is 12,002,300 shares of Common Stock (including options to purchase 6,002,300 shares of Common Stock and 375,536 shares referenced in cash-settled equity swaps), constituting approximately 5.1% of the Issuer’s currently outstanding Common Stock.  The percentage of shares of Common Stock reported herein are based upon the 235,325,963 shares of Common Stock outstanding as of July 27, 2015, as reported in the Issuer’s Annual Report on Form 10-K, filed with the SEC on August 25, 2015.
 
       The information required by Items 5(a) – (b) is set forth in rows 7 – 13 of the cover page for each of the Reporting Persons and is incorporated herein by reference.  By virtue of his direct and indirect control of SAMC and SIS, Mr. Sandell is deemed to have shared voting power and shared dispositive power with respect to all Common Stock as to which SAMC and SIS have voting power or dispositive power.  
 
        Pursuant to certain cash-settled equity swaps, SIS and Mr. Sandell have economic exposure to, and may be deemed to beneficially own, approximately 375,536 notional shares of Common Stock, constituting approximately 0.2% of the outstanding shares of Common Stock, pursuant to certain cash-settled equity swaps, as more fully described in Item 6 of this Schedule 13D.
 
(c)     Information concerning transactions in the Common Stock effected by the Reporting Persons during the past sixty days is set forth in Schedule B hereto and is incorporated herein by reference.  Unless otherwise indicated, all of such transactions were effected in the open market.
 
(d)     No person (other than the Sandell Funds and the Reporting Persons) is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, Common Stock.
 
(e)     Not applicable.

 

Item 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER
 
       The Reporting Persons are parties to an agreement with respect to the joint filing of this Schedule 13D and any amendments thereto.  A copy of such agreement is attached as Exhibit 2 and is incorporated by reference herein.
 
         The Reporting Persons have purchased call option contracts covering 6,002,300 shares of Common Stock with an exercise date of January 15, 2016 and a strike price of $7.00.
 
        Certain of the Reporting Persons may be deemed to have economic exposure to an additional 375,536 shares of Common Stock pursuant to certain cash-settled equity swaps.  The counterparty to such cash-settled equity swaps is Credit Suisse and such swaps mature on May 19, 2016.  The reference price for such swaps is $6.37.  The Reporting Persons do not have voting power or dispositive power with respect to the Common Shares referenced in such swaps.
 
         Other than such joint filing agreement, options and cash-settled equity swaps, the Reporting Persons have no contracts, arrangements, understandings or relationships with any persons with respect to securities of the Issuer.

 

 

  CUSIP No. 925550105SCHEDULE 13D Page 8 of 11 Pages

 

Item 7. EXHIBITS
 
Exhibit Description
1 September 1 Press Release
2 Joint Filing Agreement, dated September 1, 2015.

 

  CUSIP No. 925550105SCHEDULE 13D Page 9 of 11 Pages

 

SIGNATURES

After reasonable inquiry and to the best of its knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct.

Date: September 1, 2015

 

  SANDELL ASSET MANAGEMENT CORP.  
       
  By: /s/ Thomas E. Sandell  
  Name: Thomas E. Sandell  
  Title: Chief Executive Officer  
       
       
  SANDELL INVESTMENT SERVICES, L.L.C.  
       
  By: /s/ Thomas E. Sandell  
  Name: Thomas E. Sandell  
  Title: Managing Member  
       
       
  /s/ Thomas E. Sandell  
  Thomas E. Sandell  
     

 

 

  CUSIP No. 925550105SCHEDULE 13D Page 10 of 11 Pages

SCHEDULE A

 

Directors and Executive Officers of Certain Reporting Persons

 

SIS

 

The following sets forth the name, position, citizenship, principal occupation and business address of the sole managing member of SIS.

 

Name Position Citizenship Principal Occupation Business Address
Thomas E. Sandell Director Sweden Chief Executive Officer of SAMC 540 Madison Ave., 36th Floor, New York, New York 10022

 

SAMC

 

The following sets forth the name, position, principal occupation, business address and citizenship of each director and executive officer of SAMC.

 

Name Position Citizenship Principal Occupation Business Address
Thomas E. Sandell Director and Chief Executive Officer Sweden Chief Executive Officer of SAMC 540 Madison Ave., 36th Floor, New York, New York 10022
Daniel Mignon Director Switzerland Principal, Alpstar Capital SA 7. Av. De Tournay, 1292 Chambesy
Adam Hoffman Chief Compliance Officer United States Legal Counsel at SAMC 540 Madison Ave., 36th Floor, New York, New York 10022
Daniel Borenstein Chief Financial Officer United States Chief Financial Officer of SAMC 540 Madison Ave., 36th Floor, New York, New York 10022
Alejandro Mazier Senior Managing Director United States Senior Managing Director at SAMC 540 Madison Ave., 36th Floor, New York, New York 10022
Shreyas Gupta Senior Managing Director United States Portfolio Manager at SAMC 540 Madison Ave., 36th Floor, New York, New York 10022

 

 

  CUSIP No. 925550105SCHEDULE 13D Page 11 of 11 Pages

SCHEDULE B

 

 

TRANSACTIONS IN THE ISSUER’S SHARES OF COMMON STOCK

BY THE REPORTING PERSONS

 

 

This Schedule sets forth information with respect to each transaction in shares of Common Stock that were effectuated by the Reporting Persons for the benefit of the Sandell Funds in the last 60 days. Unless otherwise indicated, all transactions were effectuated in the open market through a broker and all prices include brokerage commissions.

 

 

SAMC

 

Trade Date Shares Purchased (Sold) Weighted Average Price Per Share ($) *Range of Prices Per Share ($)
8/12/2015 1,219,580 5.61* 5.59 – 5.62
8/13/2015 588,300 5.94* 5.92 – 5.97
8/14/2015 341,120 5.77* 5.73 – 5.87
8/25/2015 (37,215) 5.42 N/A
8/25/2015 1,180,719 5.37 N/A

 

 

SIS

 

Trade Date Shares Purchased (Sold) Weighted Average Price Per Share ($) *Range of Prices Per Share ($)
8/12/2015 229,090 5.64* 5.59 – 5.62
8/13/2015 112,700 5.94* 5.92 – 5.97
8/14/2015 107,680 5.77* 5.73 – 5.87
8/25/2015 627,919 5.37 N/A

 

 

 EX-99 2 exhibit_1.htm EXHIBIT 1

EXHIBIT 1

 

 

SANDELL SENDS LETTER TO VIAVI SOLUTIONS INC.

Seeks Strategic Review to Maximize Value of Company’s Net Operating Losses (NOLs) and Reverse History of Poor Governance and Performance

Sees Value of Over $10 per Share in Sale of Company; Transition to Platform Company may Deliver Over $12 per Share of Value

Sandell Prepared to Nominate Slate of Director Candidates for 2015 Annual Meeting

 

New York (September 1, 2015) - Sandell Asset Management Corp. and its affiliates (“Sandell”), the beneficial owner of approximately 12.0 million shares, or 5.1%[1], of Viavi Solutions Inc. (“Viavi” or the “Company”, and formerly JDS Uniphase Corporation) (NASDAQ:VIAV), today sent a letter to the Company’s Board of Directors (the “Board”).

In the letter, Sandell outlines a number of actions it believes the Company must undertake in order to enhance value and reverse the poor governance and performance that has plagued its shareholders. These actions include:

  • Refreshing and materially enhancing the quality of Viavi’s Board of Directors;
  • Conducting a thorough review of strategic alternatives;
  • Retaining an independent financial advisor and operational consulting firm; and
  • Identifying a new management team with the experience necessary to maximize the value of the Company’s deferred tax assets, which include its $4 billion to $4.5 billion of federal net operating losses (NOLs).

Sandell believes that such a strategic review should include the exploration of alternatives for the NSE and OSP business as well as Viavi as a whole. Sandell believes that shareholders could receive over $10 per share in value if Viavi was sold in its entirely, while a value in excess of $12 per share could be realized if the Company were to transition itself into a tax-advantaged “platform company.” Examples of publicly-traded “platform companies” or acquisition vehicles include Jarden Corporation (NYSE:JAH), Platform Specialty Products Corporation (NYSE:PAH), and Nomad Foods Limited (LSE:NHL), and the Company should seek to identify a CEO with the background needed to reposition Viavi as such a company.

___________________________

[1] Including beneficial ownership of shares underlying options and including certain affiliates not participating in any solicitation with respect to the Company.

 
 

Sandell has identified a number of outstanding, potential Board members and is prepared to nominate a competing slate of Director candidates for the Company’s 2015 Annual Meeting - though it would be Sandell’s preference to reach an amicable resolution that would avoid the need for a contentious proxy battle. Sandell had engaged in good faith dialogue with Viavi in the very recent past but was not able to enter into a settlement agreement due to certain conditions that the Company sought to impose. Sandell believes that the nomination window to submit candidates for the Board of Directors of Viavi opens on September 6.

The text of the letter is as follows:

 

September 1, 2015

The Board of Directors

Viavi Solutions Inc.

430 North McCarthy Boulevard

Milpitas, CA 95035

 

Attention: Richard E. Belluzzo, Chairman and Interim CEO

c/o Kevin Siebert, Secretary

 

Dear Rick:

 

As you know, Sandell Asset Management Corp. (“Sandell”) is a significant shareholder of Viavi Solutions Inc. (“Viavi” or the “Company”, and formerly JDS Uniphase Corporation), with current beneficial ownership of approximately 12.0 million shares, or 5.1%(1), of the Company. While we appreciate the previous dialogue that my colleague Richard Mansouri and I have had with you and other Company representatives over the last few months, as well as the diligent, good faith efforts that we had put into recent settlement discussions, our firm could not in good conscience enter into a settlement agreement with Viavi unless such agreement provided for meaningful, comprehensive change at the Company. This was particularly important given the Company’s history of what we believe to be troubling governance practices, poor operating results, and truly abhorrent stock price performance. Furthermore, certain conditions that you sought to impose upon us were far from standard and in fact highly offensive.

 

Along with the recent release of Viavi’s Fiscal Fourth Quarter and Year End 2015 results, we learned that CEO Thomas Waechter is leaving the Company. While we harbor no personal animosity toward Mr. Waechter, we view this development as a unique opportunity for the Company to finally take the steps necessary to deliver value to its long-suffering shareholders. It is in fact noteworthy that in our settlement discussions, Viavi had insisted that Mr. Waechter maintain his role of CEO. We fear that the exit of Mr. Waechter, as well as the Company’s apparent newly-found desire to add two new directors, reflects an insufficient attempt at meaningful change.

 

 
 

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). It is this last point that merits further discussion, as we are astonished by the Company’s apparent failure to understand the potential value of such tax assets, notwithstanding very recent comments from CFO Rex Jackson that Viavi possesses between $4 billion to $4.5 billion of federal NOLs alone.

 

From a “big picture” perspective, the value ascribed to NOLs is related to the amount and timing of pre-tax income that such NOLs can shield from tax. To put it another way, the utilization and thus value of a company’s NOLs increases as the amount of pre-tax income generated by such company increases. Moreover, the faster this income is generated, the more quickly that these NOLs can be utilized and hence the higher the present value afforded to them. Until we made our thoughts regarding Viavi publicly known in October of 2014, there had been next to no mention of the potential value of the Company’s NOLs. Even now, as recently as the Company’s August 11 Fiscal Fourth Quarter conference call, the vague comments made by Viavi suggest that the Board has little idea how to maximize the value of these tax assets. As Chairman of the Board and interim CEO, you may recall that your exact comments on the conference call were, “I think we have more work to do on NOLs, clearly it’s a big number,” which does not exactly suggest a robust grasp of the topic nor an urgency to address it.

 

In our informed opinion, the method by which Viavi could generate maximum value from its vast balance of NOLs is to transition itself into what is known as a “platform company.” There are at least three publicly-traded platform companies, or acquisition vehicles, that have generated a wide following in the investment community, namely Jarden, Platform Specialty Products, and Nomad Foods, due in large part to the acumen demonstrated by their management teams and boards of directors, and we should note that none of these companies possessed any meaningful tax assets to speak of. We contrast this with Viavi, whose operational history, in our opinion, has been nothing short of disastrous. Its much-hyped attempt to transition to a software-centric business through the expensive and destructive build-out of its SE segment has cost hundreds of millions of dollars and has saddled the Company with significant and recurring operating losses. With the departure of Thomas Waechter, the Company now has the ability to conduct a far-reaching search in order to identify an executive with the background needed to reposition Viavi as a tax-advantaged platform company. In the interim, Viavi must retain an operational consulting firm such as Alvarez & Marsal in order to identify and eliminate the many excess costs that we believe are plaguing the Company.

 

Along with the need to identify a new CEO is the desperate need for the Company to conduct a dispassionate review of strategic alternatives. The Board appears to still cling to the belief that

 
 

Viavi should continue to be in the test and measurement business, notwithstanding the consolidation taking place in this space and what we believe to be the lack of operational competence demonstrated by the Company. At minimum, Viavi should explore the sale of the NSE segment to any of a number of other larger companies, such as Keysight Technologies, Inc. (KEYS), who we believe would be able to wring substantial savings out of such a business. In a similar manner, a strategic review of the Company’s highly-profitable OSP segment should be undertaken, as we do not believe that Viavi’s stock price reflects the potential value that a knowledgeable third party would ascribe to such a business. Moreover, the contribution of the OSP business to Viavi is being obscured by the poor performance of the NSE business and the inordinately high corporate overhead present at the Company. To conduct such a review, we believe the Company must hire a new and truly independent financial advisor, un-tainted by previous dealings with the Company, in order to conduct a comprehensive review of strategic alternatives for both the OSP and the NSE business as well as options for Viavi as a whole.

 

Despite all the concern for “value” that various Company representatives have professed, we fear that the Board has little understanding of what “value” means to the institutional community. Quite simply, the “value” of a publicly-traded company is measured by such company’s stock price, and by this metric we find that the Board has overseen a truly shocking erosion of value. By our approximate calculations, the value of Viavi may easily be between 85% and 122% higher than its existing share price, as is illustrated below:

  

 

($ in millions) Multiple

Base Case

("Section 382" NOLs)

 Multiple Upside Case
("Platform" Value)
NSE (NE/SE) $701.2 MM FY2015 Revenue 1.50 $1,051.8 1.50 $1,051.8
OSP $74.9 MM FY2015 Operating Income 10.00 749.0 10.00 749.0
Add:        
   Cash and Investments (after $127.0MM contribution to LITE)   712.4   712.4
  19.9% Lumentum Stake (8/28/15)          11.7 MM Shares of LITE @ $19.92 233.1 $19.92 233.1
Less:        
     Debt   (561.6)   (561.6)
Value of Viavi (ex-NOLs Value)   2,184.7   2,184.7
Value of NOLs *   228.4   715.5
Implied Equity Value of Viavi   $2,413.1   $2,900.2
Shares Outstanding   235.3   235.3
Implied per Share Value of Viavi (VIAV)   $10.25   $12.32
Current Viavi Stock Price (8/28/15)   $5.55   $5.55
% Increase/Decrease   84.8%   122.1%

 

 

 * In the “Section 382” case, the annual use of NOLs is limited to the long-term tax-exempt rate multiplied by the ex-NOL value of Viavi. In the “Platform” case, Viavi is assumed to make acquisitions for total consideration equal to the ex-NOL value of Viavi plus an equivalent amount of leverage at an acquisition price of 15x pre-tax income, financed 50/50 cash and debt, with annual NOL use equal to pre-tax income less 4.5% interest expense on incremental debt. Both cases discount 20 years of annual tax savings at an assumed 35% tax rate and a 7% discount rate.

 

We highlight the fact that we approximate the Company’s tax assets in two ways, the first being the most draconian method, which assumes that Viavi is sold in its entirety to another acquirer, in which case the Company’s NOLs would be subject to a Section 382 limitation. Even in this draconian scenario, we believe that shareholders could realize a value of $10.25, which is 85% higher than its current price. The other method assumes that the Company monetizes its underlying business segments and transitions to a tax-advantaged platform company in which Viavi utilizes these proceeds plus the Company’s existing cash and investments along with

 
 

incremental leverage to pursue an acquisition or series of acquisitions of profitable businesses. We believe this alternative could yield a value of $12.32, which is 122% higher than the current price.

 

In order to take these critical and necessary steps to deliver enhanced value to the shareholders of Viavi, the Company must have a Board consisting of truly objective individuals with a deep knowledge of complex financial matters as well as a fulsome understanding of the public markets. Furthermore, we have no confidence whatsoever that the Company’s purported search for two new directors will result in the addition of members who will be able to offset the collective inertia that we believe pervades the existing Board.

 

As you are aware, the nomination window to submit candidates for the Board of Directors of Viavi opens on September 6 and we are prepared to submit a competing slate of Director candidates for the 2015 Annual Meeting. That said, it remains our preference to reach an amicable resolution that would avoid the need to embark upon a costly, distracting, and no doubt highly-contentious proxy battle. If you are willing to enter into good faith discussions with a view towards reaching a fair settlement agreement, we ask that your counsel contact Marc Weingarten of Schulte Roth & Zabel LLP at (212) 756-2000 as soon as possible.

 

Sincerely,

 

Thomas E. Sandell

Chief Executive Officer

 

 

 

cc: The Board of Directors

 

 

 

 

About Sandell Asset Management Corp.

Sandell Asset Management Corp. is a leading private, alternative asset management firm specializing in global corporate event-driven, multi-strategy investing with a strong focus on equity special situations and credit opportunities. Sandell Asset Management Corp. was founded in 1998 by Thomas E. Sandell and has offices in New York and London, including a global staff of investment professionals, traders and infrastructure specialists.

 

 
 

Contact:

Sandell Asset Management Corp.

Adam Hoffman, 212-603-5814

Okapi Partners LLC

Bruce Goldfarb, 212-297-0722 or Chuck Garske, 212-297-0724

Sloane & Company

Elliot Sloane, 212-446-1860 or Dan Zacchei, 212-446-1882

 

SANDELL ASSET MANAGEMENT CORP., THOMAS E. SANDELL AND CERTAIN OF THEIR AFFILIATES (COLLECTIVELY, THE “PARTICIPANTS”) INTEND TO FILE WITH THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) A DEFINITIVE PROXY STATEMENT AND ACCOMPANYING FORM OF PROXY CARD TO BE USED IN CONNECTION WITH THE SOLICITATION OF PROXIES FROM THE STOCKHOLDERS OF VIAVI SOLUTIONS INC. (THE “COMPANY”) IN CONNECTION WITH THE COMPANY’S 2015 ANNUAL MEETING OF STOCKHOLDERS. ALL STOCKHOLDERS OF THE COMPANY ARE ADVISED TO READ THE DEFINITIVE PROXY STATEMENT AND OTHER DOCUMENTS RELATED TO THE SOLICITATION OF PROXIES BY THE PARTICIPANTS WHEN THEY BECOME AVAILABLE, AS THEY WILL CONTAIN IMPORTANT INFORMATION, INCLUDING ADDITIONAL INFORMATION RELATED TO THE PARTICIPANTS. WHEN COMPLETED, THE DEFINITIVE PROXY STATEMENT AND AN ACCOMPANYING PROXY CARD WILL BE FURNISHED TO SOME OR ALL OF THE COMPANY’S STOCKHOLDERS AND WILL BE, ALONG WITH OTHER RELEVANT DOCUMENTS, AVAILABLE AT NO CHARGE ON THE SEC’S WEBSITE AT HTTP://WWW.SEC.GOV/.

 

INFORMATION ABOUT THE PARTICIPANTS AND A DESCRIPTION OF THEIR DIRECT OR INDIRECT INTERESTS BY SECURITY HOLDINGS WILL BE CONTAINED IN AN EXHIBIT TO THE SCHEDULE 14A TO BE FILED BY SANDELL ASSET MANAGEMENT CORP. WITH THE SEC ON SEPTEMBER 1, 2015. THIS DOCUMENT CAN BE OBTAINED FREE OF CHARGE FROM THE SOURCES INDICATED ABOVE.

 

Cautionary Statement Regarding Opinions and Forward-Looking Statements

Certain information contained herein constitutes “forward-looking statements” with respect to Viavi Solutions Inc. ("Viavi" or the “Company”), which can be identified by the use of forward-looking terminology such as “may,” “will,” “seek,” “should,” "could," “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Such statements are not guarantees of future performance or activities. Due to various risks, uncertainties and assumptions, actual events or results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. The opinions of Sandell Asset Management Corp. ("SAMC") are for general informational purposes only and do not have regard to the specific investment objective, financial situation, suitability or particular need of any specific person, and should not be taken as advice on the merits of any investment decision. This material does not recommend the purchase or sale of any security. SAMC reserves the right to change any of its opinions expressed herein at any time as it deems appropriate. SAMC disclaims any obligation to update the information contained herein. SAMC and/or one or more of the investment funds it manages may purchase additional Viavi shares or sell all or a portion of their shares or trade in securities relating to such shares.

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EXHIBIT 2

 

Joint Filing Agreement

 

PURSUANT TO RULE 13d-1(k)

 

The undersigned acknowledge and agree that the foregoing statement on Schedule 13D is filed on behalf of each of the undersigned and that all subsequent amendments to this statement on Schedule 13D may be filed on behalf of each of the undersigned without the necessity of filing additional joint filing agreements. The undersigned acknowledge that each shall be responsible for the timely filing of such amendments, and for the completeness and accuracy of the information concerning him or it contained herein and therein, but shall not be responsible for the completeness and accuracy of the information concerning the others, except to the extent that he or it knows that such information is inaccurate.

 

Dated: September 1, 2015.

 

  SANDELL ASSET MANAGEMENT CORP.  
       
  By: /s/ Thomas E. Sandell  
  Name: Thomas E. Sandell  
  Title: Chief Executive Officer  
       
       
  SANDELL INVESTMENT SERVICES, L.L.C.  
       
  By: /s/ Thomas E. Sandell  
  Name: Thomas E. Sandell  
  Title: Managing Member  
       
       
  /s/ Thomas E. Sandell  
  Thomas E. Sandell