Viavi splashes £1 billion on rival test firm Spirent

Both Arizona-based Viavi and Sussex-based Spirent sell a broad range of fixed and wireless network testing, service assurance, cybersecurity and positioning solutions. If their respective portfolios were expressed as a Venn diagram, it would look more or less like a perfect circle, so to say there are synergies to generate from this tie-up would be an understatement.

Viavi has targeted annual run-rate cost synergies of up to $75 million approximately two years after the deal closes, which is expected to happen during the second half of this year.

"Combining with Viavi brings together a highly complementary product offering which can be marketed globally," said Spirent CEO Eric Updyke. "It will enable Spirent to build on the strategic progress we have made to date, with a partner that has the scale and resources to capitalise on the long-term growth opportunities ahead. The combination of Viavi and Spirent creates a stronger business that will be better able to compete, and we are confident in the opportunities this will bring for our stakeholders."

The cash plus special dividend offer of 175 pence per share represents a 61.4 percent premium on Spirent's closing share price on Monday, and a 49.2 percent premium on the volume weighted average price over the preceding three months.

Spirent shareholders will also receive a special dividend of 2.5 pence per Spirent share in lieu of a final dividend for the year ended 31 December 2023.

To fund the acquisition, Viavi will use its cash plus Wells Fargo will provide a seven-year loan weighing in at $800 million and an additional $100 million five-year revolving credit facility. US private equity firm Silver Lake is putting up a $400 million senior convertible note; in return its chairman Ken Hao will take a seat on Viavi's board.

"The Spirent Board intends to unanimously recommend this all-cash offer, which not only represents an attractive outcome for Spirent Shareholders, but also provides a significant opportunity for employees, customers and other stakeholders through what is a highly strategic and highly complementary combination," said Sir Bill Thomas, chairman of Spirent. "With its strong management team, global scale and the cultural alignment between our businesses, we are confident that in Viavi, we have found the right owner to take Spirent on to the next phase of its growth story."

That growth story doesn't look too compelling judging by Spirent's full-year financial report, published alongside the takeover announcement.

Revenue in 2023 slumped to $474.3 million from $607.5 million in 2022, as order intake fell 23.8 percent year-on-year to $477 million.

Adjusted operating profit fell 65.1 percent to $45.2 million, and reported pre-tax profit plummeted 80 percent to $22.9 million.

"As we progressed through 2023, the market landscape became increasingly challenging. The elevated prevailing interest rates and inflationary pressures impacted customers, especially those in the telecommunications sector. These customers responded by taking significant action, particularly in the second half of 2023, to cut costs and by reducing their capital expenditure to preserve cash," said Updyke.

"We expect that the current challenges for the telecoms industry will continue and it is difficult to predict how long they will last," he continued. "Whilst we continue to believe the mid to longer term drivers for our business remain intact, as announced separately today, the board has concluded that the offer from Viavi should be recommended to shareholders given the value it places on our business."

Indeed, given the difficult operating environment, a takeover by Viavi will give Spirent an opportunity to make the best out of a tricky situation.