Viavi to Acquire EXFO for $430M

Viavi Solutions (VIAV) proposes to acquire all outstanding subordinate voting shares and multiple voting shares of EXFO Inc for about $430 million. The transaction values the company at $7.5 a share, representing a 103% premium to the June 4 closing price. It also represents a 25% premium to the $6 consideration offered under the “Going Private Transaction”.

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Additionally, the offer is at the high end of the $5.75 to $7.5 formal valuation range prepared by TD Securities as part of the Going Private Transaction. The Viavi Board has already approved the transaction, reiterating no shareholder vote will be required.

The merger is expected to result in a combined company that will be a leader in communications, tests, and measurement over the next decade. The combined company should be able to pursue strong investments in growth areas while achieving greater operating leverage.

Viavi is looking to leverage the expertise, skills, and experience of EXFO’s key employees and expects their retention to be crucial for the merged entity’s success. (See Viavi stock chart on TipRanks).

However, the proposed merger faces a significant hurdle. EXFO’s majority shareholder, Germain Lamonde, insists he will not consider any alternative change of control transaction. The remarks come despite Viavi reiterating that its acquisition bid offers compelling value to EXPO shareholders, including the majority shareholder.

Needham analyst Alex Henderson recently reiterated a Buy rating on Viavi with a $19 price target, implying 6.8% upside potential to current levels. According to the analyst, the company is seeing a recovery in Telco and Enterprise end markets.

Henderson stated, “Viavi is seeing a solid recovery in demand across its Telecom business, robust and extended visibility in its Anti Counterfeiting line, but a bit slower than expected growth in 3D Sensing. Viavi is starting to see indications of an imminent start to the ramp of 5G field test products, which we see as a catalyst for improving results.”

Consensus among analysts is a Strong Buy based on 3 Buys. The Viavi average analyst price target of $20.67 implies 16.19% upside potential to current levels.

VIAV scores a 6 out of 10 on TipRanks’ Smart Score rating system, suggesting that the stock is likely to perform in line with market averages.