Harmonic shares jumped 9% the day after the video and cable tech company inked a cooperation agreement with a big shareholder that left some industry watchers scratching their heads about what it all means.
The agreement itself was pretty basic. Scopia Capital Management, an investor that has been buying Harmonic shares in recent years and now holds a stake of 9.8% in the supplier, now has the right to appoint two directors to Harmonic's board of directors during the next year. Scopia has also pledged to support Harmonic's slate of nominees at the upcoming 2021 annual meeting "and abide by customary standstill and other provisions."
According to an April 12 SEC filing, Jerome Lande, partner and head of special situations for Scopia, has been identified as the first of two Scopia appointees.
While heavier involvement from an activist shareholder is sure to draw attention, this cooperation agreement did lead to some speculation that it could mean Harmonic is under pressure to sell a piece of its video segment business so it can put more focus on cable. Or maybe sell the whole thing to a company, such as CommScope, that might covet Harmonic's "CableOS" technology and its growing relationship with Comcast.
OK, fair enough. However, a statement from Harmonic CEO Patrick Harshman about the agreement with Scopia indicates that he likes Harmonic's current trajectory. "We are continuing to build on the momentum in our Cable Access and Video segments. We remain very excited about our future opportunities," he said.
But then that speculation got a bit wilder, wondering if the planned spin-out of CommScope's Home Networks business, which includes set-top boxes and cable modems, might make for a good combination with Harmonic's assets.
Huh? To me, that doesn't even qualify as a reach. Such a transaction would seem to make less than zero sense for Harmonic, which has been focused on access network infrastructure, video processing and network software – nowhere near the consumer premises equipment (CPE) market. Or maybe I am just blind and stupid. I'm not blind, anyway.
The reasoning for Scopia's increased involvement in Harmonic's affairs appears to be much more benign.
According to Harmonic, Scopia had expressed interest in engaging more actively with the vendor, which followed with the dialogue that resulted in this week's agreement.
A 13-D filing from March sheds a bit more light on Scopia's motivations, and they appear fairly straightforward.
Scopia acquired a bigger stake "for investment purposes in the belief that the shares of [Harmonic] Common Stock are undervalued and represent an attractive investment opportunity," Scopia explained. Scopia added that it might talk up other shareholders, industry analysts and other third parties about Harmonic's business, capital structure and management, but didn't signal that it was looking to make any major or abrupt changes or was looking for Harmonic to actually do anything different.
In any case, a cooperation agreement that appeared to make a possible activist shareholder less active calmed some nerves. And if its intentions truly are fixated on boosting the value of Harmonic stock, that seems to be working: Harmonic shares closed today at $8.81, up $0.73 (9.03%).
- Scopia cuts deal to appoint two Harmonic board directors
- Harmonic 'CableOS' rollouts rise to 44 customers, 2.6M cable modems
- Comcast Commits Millions to Harmonic's 'CableOS' Platform
— Jeff Baumgartner, Senior Editor, Light Reading