Elliott Management vs. Juniper Networks: Changes Needed

In hindsight, 2013 may not have been Juniper Networks' (JNPR) year to shine. The company lost some top executive talent and sought to replace not only its president, but also its worldwide and U.S. channel chiefs. Now, 2014 is starting off a bit rocky as activist hedge fund Elliott Management is ready to take the company on to push for cost reductions and the return of capital to shareholders.

The Paul Singer-owned hedge fund claimed a 6.2 percent stake in Juniper on Monday and urged Juniper to do a cost realignment and return capital to shareholders using stock repurchases. Elliott Management released a 28-page presentation that outlined how the hedge fund would cause Juniper's stock to rise to upwards of $40 per share.

The irony is, the release of presentation actually caused Juniper's share to jump 9 percent to $25.89.

Elliott Management's presentation called for Juniper to reduce costs by $200 million and begin a share repurchase program valued at $3.5 billion.

"Juniper's new CEO along with its existing management team and board have a unique opportunity to immediately unlock significant value at the company through three straightforward and much-requested courses of action," said Jesse Cohn, portfolio manager at Elliott Management, in a prepared statement. "Investors and Street analysts have been calling for Juniper to implement these value-creation initiatives for years, and we believe the three-pronged approach laid out in today's presentation would be very well-received."

The timing of the presentation, as well as Elliott Management's Schedule 13D filing with the Securities and Exchange Commission (SEC), likely means the restructuring plan the activist hedge fund has suggested is the talk of the Juniper 2014 Global Partner Conference, which kicked off yesterday.

Juniper released a statement in response to the SEC filing, but the networking company kept it fairly neutral and gave little away as to its thoughts. But Juniper did note that it "continues to deliver improved financial and operational performance as evidenced by five consecutive quarters of year-over-year revenue growth and our continued efforts to streamline the company's cost base."

Juniper also commented that it has returned approximately 105 percent of its free cash flow to shareholders in the last three years—a return of $1.7 billion. Apparently that's not enough for Elliott Management. Juniper stated it has not had any discussions with Elliott Management regarding the SEC filing.

Such changes as outlined by the SEC filing would have an impact on Juniper, its strategy and—possibly only indirectly—its channel partners. We'll have to wait to see who makes the next move.