Viavi hints at legal action to force Lamonde’s hand on EXFO takeover

EXFO Founder and buyout refusenik is "incorrect" to think he can keep rejecting our advances, Viavi says.

Viavi has said that it may take further legal action if EXFO’s Germain Lamonde – Founder, Executive Chair and controlling shareholder – continues to bat away its offers to buy the company.

Viavi has been making a series of bids to take control of EXFO, a rival company in the test, assurance and network monitoring space. Yesterday, it said it was willing to up its previous bid of $7.50 per share to $8.00 per share.

EXFO’s Lamonde has consistently rejected any offer bid from Viavi, and he did so again yesterday. Lamonde holds about 60% of the share capital and over 90% of the voting rights. His preference is to de-list the company and take it private, at a share price of $6.00. Although this is lower than the Viavi bid, he points out it is still a 62% premium on the trading price before Viavi made a bid on June 4, and before he first mooted his rival Go Private scheme. In any case, Lamonde insists that only the status quo as a listed company, or the Go Private deal, are viable options. He says he won’t sell to Viavi, and won’t change his mind.

Lamonde issued a statement through EXFO saying a merger is only aimed at “eliminating Viavi’s main competitor” and would therefore be bad for both company’s customers, as it would reduce competition and increase prices.

Viavi said that if it did buy EXFO, it would keep the EXFO brand going, and that it “values” the skills and expertise of key EXFO talent. But it said that a combined company would have “significantly greater scale and financial resources” to “build the leader in communications test and measurement for the next decade.”

Going legal?

It intends to keep the pressure on the remainder of the EXFO shareholders, clearly believing that the EXFO board must consider its offer on their behalf. And in a statement provided to TMN it hinted at future legal action. The statement said: “Lamonde incorrectly believes that as a controlling shareholder, he has the legal right to reject any proposal no matter how compelling it is. We are taking our case directly to shareholders under the methods prescribed by the relevant law, and will pursue other legal avenues as warranted.”

TMN has asked EXFO for its response to Viavi’s assertion that Lamonde is incorrect to believe he can reject any proposal. The company has scheduled a special meeting on 13 August to discuss Lamonde’s Going Private deal.

The takeover bid comes as EXFO sees an uptick in demand for its products and services. Its sales for Q2 and Q3 increased 8-9% over the previous year, while Q3 bookings improved 47.2%, driven by fiber deployment projects that had been delayed due to the pandemic.

Lamonde started EXFO in his own home office, and has built the company up to an annual turnover topping $280 million in 2019. Lamonde and EXFO have themselves acquired many companies himself along the way, including Astellia, Ontology and Nethawk. But he is clearly extremely resistant to seeing his creation become a target itself.

The company makes about 80% of its takings from its test and measurement business, with the remainder from its service assurance business. Recently the company has made the move to support CSPs’ transition to 5G and to cloud native and virtualised networks, structuring data collection via active test, and analytics, to be able to operate within and as part of a cloud infrastructure.

Viavi has been addressing a similar path, with a strong position in network equipment testing in lab, manufacturing and in the field. Its annual revenues top out at around $1.1 billion in the past couple of years – driven hugely by its “network Enablement” sector. Its Service enablement sector (service assurance and monitoring) contributes about 8-9% of group revenues. Over the years since it was formed out of a split-up of JDSU Uniphase, Viavi Solutions has been on its own acquisition path, buying the former Aeroflex test business from Cobham, location analytics company Arieso and SON provider Reverb Networks, amongst others.