Hold its rising companies or cut up them

FG Commerce | E+ | Getty Photos Firm: Harmonic Inc. (HLIT) Enterprise: Harmonic offers video supply software program, merchandise, system options, and companies worldwide. Its merchandise allow prospects to create, put together, retailer, playout, and ship a variety of broadcast and streaming video companies to shopper units, together with televisions, private computer systems, laptops, tablets,


FG Commerce | E+ | Getty Photos

Firm: Harmonic Inc. (HLIT)

Enterprise: Harmonic offers video supply software program, merchandise, system options, and companies worldwide. Its merchandise allow prospects to create, put together, retailer, playout, and ship a variety of broadcast and streaming video companies to shopper units, together with televisions, private computer systems, laptops, tablets, and good telephones. The corporate has two enterprise segments – Video and Cable Entry. The Video phase offers video processing, manufacturing and playout options and companies worldwide to cable operators and satellite tv for pc and telco service suppliers and to broadcast and media firms, together with streaming media firms. The Video enterprise infrastructure options are delivered via cargo of merchandise, software program licenses or as SaaS subscriptions.  The Cable Entry enterprise offers cable entry options and associated companies primarily to cable operators globally.

Inventory Market Worth: $782M ($7.76 per share)

Activist: Scopia Capital Administration

Proportion Possession:  9.61%

Common Price: $5.72

Activist Commentary: Scopia just isn’t traditionally an activist investor. Nevertheless, activist investor Jerome Lande (of Coppersmith Capital and previous to that, MMI Traders) folded his operations into Scopia for the aim of working an activist portfolio inside the agency and giving activist recommendation and assist on Scopia’s bigger portfolio, which is a standard long-short fund.

What’s Taking place:

On April 9, 2021, Scopia and the corporate entered right into a Cooperation Settlement, pursuant to which so long as Scopia owns 5% of the corporate’s widespread inventory, they’ve the precise to nominate two administrators to the board, one in all whom is Jerome Lande, head of particular conditions for Scopia, and the opposite to be an unbiased director. This appointment could also be made at any time previous to the sooner of (x) 15 days previous to the deadline for the submission of stockholder nominations of administrators for the corporate’s 2022 Annual Assembly and (y) 75 days previous to the primary anniversary of the 2021 Annual Assembly. Scopia agreed to abide by customary voting and standstill provisions.  

Behind the Scenes:

Scopia has been a shareholder within the firm for the previous two years, watching and inspiring the corporate to develop bigger companies and higher sophistication throughout each of its segments. Whereas the corporate has begun to meet that prophecy and acquire market share, the method has been sluggish and the corporate has been off on its projections. Nevertheless, over the previous few months there was new development initiatives on the video aspect, progress on the SaaS aspect, some restoration from Covid and incremental progress within the Cable Entry phase. Because of this, these companies are nearer to vital mass and at some extent the place they may very well be separated.

There was a substantial amount of consolidation within the Video enterprise. Ericsson divested its MediaKind enterprise to One Fairness, Cisco bought its Service Supplier Video Software program Options enterprise to Permira Funds and Amazon purchased the same sort of enterprise. There may very well be many firms on the market who could be considering Harmonic’s Video enterprise, and this has additionally been an space that has seen PE curiosity. Harmonic might probably get north of $450 million for this enterprise and be left with its Cable Entry enterprise, which has been taking market share with excessive margins and is anticipated to proceed to develop at 30%+. The can be a chance for the Cable Entry enterprise to proceed as a standalone enterprise or it might probably be taken out additionally.

So, the corporate is approaching an inflection level and Scopia desires to verify they’re taking these alternatives severely. Scopia is in a singular place to observe the corporate’s progress and will probably be watching to verify administration is exploring a separation of the companies whereas effectively working them. If Scopia must step in, they’ve a name choice on two board seats. The truth that Scopia structured the settlement in such a approach reveals that they’ve confidence within the board but additionally wish to have an insurance coverage coverage in case issues don’t progress like they hope. 

Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.



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