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Test & Measurement

Consolidation in test and measurement: Viavi goes for EXFO

Viavi on Wednesday made a $430 million offer to purchase Exfo, a rival in the network testing and measurement space. If the transaction is ultimately consummated, it would create a behemoth in the sector.

"The Exfo acquisition will further consolidate the testing and measurement industry, leaving Keysight Technologies and Viavi as the industry consolidators," the financial analysts at B. Riley Securities said in a note to investors Wednesday.

However, Viavi's offer for Exfo isn't free of drama. It comes roughly one week after Germain Lamonde, Exfo's founder and majority shareholder, said he wanted to take Exfo private by acquiring all the company's shares.

"This transaction is in the best interests of all of Exfo's stakeholders," Lamonde said in a June 7 statement. "The arrangement will provide holders of subordinate voting shares with a significant cash premium and immediate liquidity for their subordinate voting shares while ensuring the long-term success of Exfo as a private company for its employees, business partners and all the other stakeholders."

Uphill climb for Viavi

An Exfo executive committee has already approved Lamonde's offer.

Importantly, Exfo said in a release that "Germain Lamonde ... would not consider any alternative change of control transaction."

As a result, Viavi acknowledged it faces an uphill climb in getting Exfo on board with its new offer. The company said its proposal for Exfo represents a 25% premium to Lamonde's plan.

"Viavi believes its proposal offers compelling value to all Exfo shareholders, including Mr. Lamonde," the company wrote in a statement. "Viavi looks forward to engaging with the Exfo board and Mr. Lamonde."

In a statement released just hours after Viavi's proposal, Lamonde said he would not support a merger between Viavi and Exfo. "This is the third time that Viavi has made an offer to acquire Exfo, after its first and second attempts in November 2020 at a price of $4.75 and in May 2021 at a price of $5.25, respectively. On both occasions, I have indicated clearly to the board of directors of Exfo that, as the controlling shareholder of Exfo, I would not consider any transaction with Viavi and the board consequently concluded that there was no merit in pursuing any discussions with Viavi and did reiterate today to the board that, for the third time, Viavi's non-binding proposal would not obtain my support as the controlling shareholder."

He continued: "I believe wholeheartedly in the prospects of Exfo as a stand-alone company and I have no intention of changing the current operations of Exfo, including the location of its head office in Québec city."

The issue is important to network operators and network equipment vendors because they purchase equipment from testing and measurement providers like Viavi and Exfo to test their networks. For example, Viavi's list of top customers includes América Móvil, AT&T, Lumen Technologies, Cisco, Nokia and Verizon.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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