March 29, 2024

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Retain its developing enterprises or split them

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Enterprise: Harmonic Inc. (HLIT)

Activist: Scopia Capital Administration

Share Possession:  9.61%

Normal Price: $5.72

Activist Commentary: Scopia is not traditionally an activist investor. Even so, activist trader Jerome Lande (of Coppersmith Cash and prior to that, MMI Buyers) folded his functions into Scopia for the intent of functioning an activist portfolio inside the firm and giving activist assistance and guidance on Scopia’s more substantial portfolio, which is a traditional long-brief fund.

What is Occurring:

On April 9, 2021, Scopia and the company entered into a Cooperation Agreement, pursuant to which as lengthy as Scopia owns 5% of the company’s frequent stock, they have the correct to appoint two directors to the board, one particular of whom is Jerome Lande, head of distinctive scenarios for Scopia, and the other to be an unbiased director. This appointment may well be created at any time prior to the before of (x) 15 times prior to the deadline for the submission of stockholder nominations of administrators for the company’s 2022 Yearly Assembly and (y) 75 times prior to the 1st anniversary of the 2021 Yearly Conference. Scopia agreed to abide by customary voting and standstill provisions.  

Powering the Scenes:

Scopia has been a shareholder in the enterprise for the earlier two years, viewing and encouraging the enterprise to establish more substantial companies and greater sophistication throughout the two of its segments. Even though the firm has started to fulfill that prophecy and acquire market share, the course of action has been gradual and the business has been off on its projections. However, about the previous several months there has been new development initiatives on the movie side, development on the SaaS aspect, some restoration from Covid and incremental progress in the Cable Access section. As a end result, these organizations are nearer to significant mass and at a stage in which they could be divided.

There has been a terrific deal of consolidation in the Online video organization. Ericsson divested its MediaKind company to A person Fairness, Cisco bought its Services Supplier Video Software package Methods enterprise to Permira Resources and Amazon bought a similar style of company. There could be a lot of providers out there who may well be intrigued in Harmonic’s Movie small business, and this has also been an spot that has noticed PE curiosity. Harmonic could possibly get north of $450 million for this business and be still left with its Cable Entry organization, which has been getting sector share with higher margins and is expected to carry on to expand at 30%+. The would be an option for the Cable Obtain organization to proceed as a standalone business or it could most likely be taken out also.

So, the business is approaching an inflection issue and Scopia wishes to make positive they are having these alternatives seriously. Scopia is in a distinctive posture to check the company’s progress and will be watching to make guaranteed management is discovering a separation of the firms when proficiently working them. If Scopia desires to step in, they have a contact option on two board seats. The actuality that Scopia structured the agreement in this sort of a way reveals that they have self-assurance in the board but also want to have an insurance plan in scenario items do not progress like they hope. 

Ken Squire is the founder and president of 13D Keep an eye on, an institutional investigate support on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.

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