Sandell Asset Management Corp. (“Sandell”), a significant shareholder of JDS
Uniphase Corporation JDSU (“JDSU” or the “Company”), has released a
letter to the Board of Directors (the “Board”) of the Company. In such letter,
Sandell notes its belief that the Company must commence a formal auction of
its CCOP business. Furthermore, Sandell notes its belief that the JDSU current
stock price reflects next to no value for the Company's substantial tax
assets, which as of June 28 include federal, state, and foreign tax net
operating loss carryforwards (NOLs) of approximately $6.1 billion, $1.8
billion, and $1.0 billion, respectively, which constitutes a tax-effected book
value in excess of $2.3 billion. Sandell estimates the potential value of the
Company's various business segments as well as these tax assets at between $19
and $26 per share. Furthermore, Sandell details its submission of a
shareholder proposal requesting that the Board task its financial advisors to
evaluate further strategic alternatives, in addition to the previously
announced proposed spin-off of its CCOP business, to maximize the value of the
Company's various business segments as well as its substantial tax assets in a
timely manner. The text of the letter is as follows:
October 1, 2014
The Board of Directors
JDS Uniphase Corporation
430 North McCarthy Boulevard
Milpitas, CA 95035
Attention: Chairman of the Board
c/o Andrew Pollack, Secretary
Ladies and Gentlemen:
Sandell Asset Management Corp. (“Sandell”) is a significant shareholder of JDS
Uniphase Corporation (“JDSU” or the “Company”). While we appreciate our
dialogue with various members of the management of JDSU, including our recent
September 15 discussion with CEO Thomas Waechter, we are troubled by what
appears to be a lack of responsiveness on the part of the Board of Directors
(the “Board”) of the Company. During our discussion with Mr. Waechter, we
stressed the need for the Company to: (1) conduct a formal auction process for
the Communications and Commercial Optical Products (“CCOP”) business and (2)
pursue alternatives aimed at unlocking the substantial value associated with
the Company's vast tax assets. While Mr. Waechter had stated generally that
the Company was receptive to “anything that brings additional value to the
shareholders” of JDSU, we have yet to see any indication that the Company has
tasked its financial advisors to evaluate further strategic alternatives in
addition to the previously announced proposed spin-off of its CCOP business.
While we believe that the proposed spin-off of the Company's CCOP business is
a positive development, we believe that much more must be done to unlock
value. To wit, we believe that there are several strategic buyers who would be
interested in an outright acquisition of the CCOP business. We believe,
therefore, that the Company should immediately commence a formal auction
process for this business while it continues preparation for the spin-off of
CCOP, which is commonly known as a dual-track process. We believe that a sale
of the CCOP business could be completed far sooner than the 3^rd quarter of
2015, which is the date of the proposed CCOP spin-off, and could deliver the
certainty of cash consideration to the Company in a much more timely manner.
As of now we have seen no announcement discussing the commencement of such an
auction.
Separately, we have seen no disclosure detailing any plans to maximize the
value of the Company's vast amount of tax assets. Moreover, in our view the
current JDSU stock price of around $13 per share reflects next to no value for
these substantial assets, which as of June 28 include federal, state and
foreign tax net operating loss carryforwards (NOLs) of approximately $6.1
billion, $1.8 billion, and $1.0 billion, respectively. Indeed, the most recent
JDSU 10-K notes that the tax-effected book value of the Company's NOLs before
any valuation allowance was in excess of $2.3 billion, or over $10 per share.
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