Ancora, which holds a 2.3% stake in Harmonic, has urged the board to conduct a review of the business and explore a potential sale. Ancora believes there's a 'strong case' for Ciena to acquire Harmonic.
One of Harmonic's top shareholders has urged the board to conduct a review of the business and explore a potential sale. That shareholder, Ancora Holdings Group, contends there's a 'strong case' for Ciena to step up as Harmonic's suitor.
Ancora stated its case in a presentation (PDF), holding that a sale could deliver value of about $20 per share. Harmonic shares were up 10 cents (0.88%) to $12.02 in Monday morning trading.
Ancora held a 2.3% stake in Harmonic as of September 30, according to this 13F filing.
"Today, Harmonic trades at a depressed multiple due to issues with management's investor communication, rather than fear of actual execution," Ancora argued. "The business has performed, innovation and product development have continued, spending on networks and upgrades have accelerated… but the stock has not followed."
Ancora believes that an alternative path, led by a strategic review, would boost Harmonic's value and "likely attract significant acquirer interest."
Ancora said it intends to "engage in a constructive and open dialogue with Harmonic" to gauge the board's willingness to evaluate Harmonic's prospects as a standalone company versus exploring a sale.
Romanesque Capital Management, a Harmonic shareholder since 2016, announced Monday its support of a strategic review focused on a potential sale, noting it was "extremely encouraged" to review Ancora's presentation. "It's been our view that Harmonic should be part of a larger organization where synergies could be realized," the firm said in a statement.
Last fall, Harmonic conducted a review of its video business after hearing from interested buyers. In April 2024, Harmonic announced it would retain the unit after determining that current market conditions were not optimal. Harmonic also announced at the time that long-time exec Nimrod Ben-Natan was tapped to succeed Patrick Harshman as CEO.
"Harmonic’s Board of Directors and management team maintain an active and ongoing dialogue with our shareholders, and we welcome their views and constructive input," Harmonic said in an emailed statement. "To that end, we have held regular discussions with Ancora since they first contacted us last year to understand their perspectives. As always, our Board and management team are open to all opportunities to create shareholder value."
'Strong case' for Ciena
Cleveland-based Ancora believes there's a "strong case" for Ciena as a potential suitor for Harmonic, noting that Ciena is currently trading at a higher multiple to Harmonic and has a strong enough balance sheet to pull off such a deal. Ancora also believes that acquiring Harmonic would allow Ciena to diversify its business by deepening its existing relationships with cable operators.
"Acquiring Harmonic would be growth-, margin- and multiple-accretive, and deliver greater customer diversification and increased supplier power," Ancora explained.
Ancora did not point to any other possible suitors. However, multiple cable industry experts have speculated to Light Reading that Comcast could make a good fit given the operator's reliance on Harmonic's virtual cable modem termination system (vCMTS) technology. Harmonic's cOS system is a key component of Comcast's virtualized access network platform, and Comcast has begun to syndicate its design to other operators. The current, prime example is Canada's Rogers Communications, which recently announced it will adopt Comcast's network design, which includes a vCMTS and an upgrade to a distributed access architecture (DAA).
In Q3, Comcast represented 51% of Harmonic revenues and Charter represented 18%. Charter has also notched a deal to deploy Harmonic's vCMTS, though the operator revealed earlier this month that it has pushed out the completion of its hybrid fiber/coax (HFC) network upgrade to 2027.
Meanwhile, Harmonic acknowledged on its Q3 call that cable operator spending could slow in the early part of 2025 as they evaluate the potential for new "unified" DOCSIS 4.0 tech that supports both flavors of the specs – Full Duplex (FDX) and Extended Spectrum DOCSIS (ESD.).
Harmonic currently enjoys a huge lead in the vCMTS market over CommScope and Vecima Networks. Harmonic ended Q3 with 121 customers for cOS, a platform that also supports fiber-to-the-premises (FTTP) networks.
Editor's note: The story has been updated to include comments from Romanesque Capital Management expressing a desire that Harmonic conduct a review of its business. It has been further updated with a statement from Harmonic.
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