JDSU dismisses investor demand to sell CCOP

Management at JDSU (NASDAQ: JDSU) quickly countered an open letter from Sandell Asset Management Corp. that called for Sandell's fellow JDSU shareholders to reject JDSU's slate of board candidates at their upcoming annual meeting as a sign of support for a sale of the company's Communications and Commercial Optical Products (CCOP) unit. JDSU management reiterated its support for its current strategy of spinning out CCOP into a separate company (see "JDSU to split in two").

Speculation about whether the proposed split would encourage industry consolidation began immediately after JDSU announced its plans. JDSU President and CEO Thomas Waechter said at the time that the planned separation would not preclude the JDSU board from considering proposals to acquire the CCOP unit should they appear (see "JDSU management details split, M&A possibilities").

That acknowledgement was apparently all Standell needed to urge the board to put the CCOP up for auction, or to at least put the question before shareholders at the annual meeting. JDSU management has remained steadfast in its belief that the separation is a better approach to unlocking value and declined to add a vote on selling the CCOP assets to the annual meeting agenda. In response, Sandell issued the open letter to JDSU shareholders that suggests voting against Waechter and fellow board nominee Martin Kaplan at the annual meeting December 5.

"It is our belief that the separation of the CCOP business, a logical but wholly-insufficient first step, was approved by the Board in an attempt to ward off mounting shareholder pressure," reads the letter, signed by Sandell Asset Management CEO Thomas Sandell. "The stock price of JDS Uniphase on September 9, 2014, the day prior to the announcement of the proposed CCOP spin-off, was $11.71, less than half its price of 10 years ago. (JDSU stock closed at $26.16 on September 9, 2004.) By any measure, this performance is abominable and based on discussions that we have had with investors, there has been growing frustration with the Company’s poor stock price performance, which in our opinion is a direct result of JDSU’s byzantine complexity and operational failings."

Sandell also asserts that it was thwarted in its attempts to nominate alternative board candidates because JDSU waited until the 60-day deadline before the annual meeting was about to expire before offering Waechter and Kaplan as nominees. Therefore, while there currently aren’t any alternatives, Sandell urges shareholders to vote against Waechter and Kaplan as a way of expressing support for an aggressive exploration of potential suitors for CCOP.

In its response, the JDSU board urged shareholders "not to be misled by Sandell’s latest public commentary." While it said it welcomed dialog with shareholders such as Sandell, the board said it remained convinced it is on the right path.

"The JDSU Board and management team are confident that the separation will enhance the value of both companies by increasing the agility and focus of each business, reducing overall operating costs, and improving the overall financial performance of both companies," read the official response. "The JDSU Board believes that pursuing an auction process for the sale of any business segment, as Sandell proposes, would be harmful to the business and not serve to maximize shareholder value. Consistent with the Board’s historical approach, the Board will continue to assess its strategy and consider opportunities for additional or greater shareholder value creation."

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