EXFO’s founder, majority shareholder and executive chairman calls Viavi’s multiple offers for the company “noise on the line”
Germain Lamonde says he has fielded many offers to buy EXFO, the network test and measurement company that he founded, over the decades that it has been in business as a private and then public company. Lamonde, the majority shareholder of EXFO, its former CEO and now executive chairman, has turned them all down. In that sense, the recent series of escalating acquisition offers from competitor Viavi Solutions is business as usual.
“I am a builder, not a seller,” Lamonde told RCR Wireless News, calling himself an “entrepreneur at heart.” He was, in fact, named Canada’s EY Entrepreneur of the Year in 2019 and has helped to nurture other entrepreneurs over the years as well, currently serving on the board of CEO development forum QG100, which aims to foster business leadership in Quebec companies. Lamonde has maintained his position as EXFO’s majority shareholder through the years and after serving as CEO for three decades, has continued to be “actively involved in defining the company’s growth and investment strategies, strategic direction and corporate governance policies,” as EXFO describes his current role as executive chairman.
He speaks about EXFO as a home, and he has no desire to turn over its ownership to someone else.
“I am the majority shareholder, and it comes to me to decide whether or not I will sell the business,” he explains. “If I walk in front of your house, and I find it to be wonderful and I want to buy it, it’s up to you if you want to sell or not. It’s the same here.”
The drama that has played out publicly in the past few weeks between Lamonde and EXFO rival Viavi Solutions has been anything but business as usual for the typically staid test and measurement space.
Last November, Viavi made two quiet, unsolicited acquisition offers to EXFO: First at a price of $4.75 per share, and then at $5.25 per share. At the time, Lamonde says he made it clear to both Viavi and the EXFO board that he wasn’t interested and that he “would not consider any transaction with Viavi.” EXFO’s board decided not to pursue further discussions with Viavi due to Lamonde’s unequivocal opposition. He directly or indirectly controls 61.46% of the issued and outstanding shares of EXFO and 93.53% of the voting rights associated with those shares — no change of ownership transaction is going to happen without his cooperation, a fact which Lamonde says the company has been completely transparent about with shareholders over the years.
In an earlier public statement, Lamonde said that for a number of years, he was “regularly contacted by shareholders expressing concern over the trading price and liquidity of EXFO’s shares” and that he had “considered from time to time whether it would be more beneficial for the Corporation’s medium and long term prospects to operate as a private company.” Following on the Viavi offers, Lamonde says that he decided that it was time for a “liquidity event” — he would make an offer to EXFO’s minority shareholders, so that if they wanted to sell, they could do so, and he could return the company to the privately held entity that it once was. On June 7, Lamonde made an offer that would buy out the remaining minority shareholders and take EXFO private under his ownership, at a price of $6 per share — which Lamonde noted represented a 63% premium to the 20-day volume-weighted average trading price of the stock on the NASDAQ.
Under the terms of the arrangement, the board could consider other offers. Viavi took that as an opportunity to press its case. In mid-June, it not only increased its per-share offer to $7.50 (valuing EXFO at about $430 million), but it put out a press release making its case for the acquisition.
“There are clear strategic merits for combining Viavi and EXFO to build the leader in communications test and measurement for the next decade,” Viavi argued in its public statement on its offer. “The strength of the combined teams and technology, combined with significantly greater scale and financial resources, would enable strong investment in growth while achieving greater operating leverage than either company could do alone. Viavi values the expertise, skills and experience of the EXFO key employee talent and believes their retention and continued commitment is critical to the success of the combination. Viavi intends to continue EXFO’s brand and legacy, recognizing EXFO’s strong reputation built on years of quality product development, engineering excellence and customer service, and continue EXFO’s presence and operations in Quebec to complement and expand upon Viavi’s long-standing engineering and product development teams in Quebec and Ottawa.”
Lamonde fired back shortly after Viavi’s public statement with one of his own: A firmly worded rejection that said he wanted to be “crystal clear” with company stakeholders on his position. “As I have previously indicated numerous times to the board of EXFO, as a controlling shareholder, I will not consider any alternative change of control transaction of EXFO, such as the one proposed by Viavi and my Shares are not for sale,” Lamonde wrote. “I have founded EXFO and been involved in the company over the last 35 years and I believe that the business is well-managed, growing, strategically positioned for the evolving and dynamic future of the communications test and measurement industry. … 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.”
But as EXFO moved toward its upcoming special meeting on August 13 in which the minority shareholders will vote on whether to keep EXFO a public company or take it private under Lamonde’s $6 per share offer, Viavi put together yet another offer and once again made the information public: Increasing the offer to $8 per share — valuing EXFO at nearly $460 million — and making a proposed arrangement “based substantially” on Lamonde’s own go-private offer. Viavi called Lamonde’s offer “inadequate” considering EXFO’s recent quarterly results, particularly its bookings, which were up more than 47% year-over-year.
Again, the offer was quashed by Lamonde within hours with a public statement that not only spurned the new offer but admonished Viavi for continuing to pursue the acquisition. He wrote that the new offer was “in my view … only intended to create distortion in the current go-private process and … simply aimed at eliminating Viavi’s main competitor. … My position has not changed … nor will it change, no matter how many times EXFO’s primary competitor tries to interfere in the process for its own benefit.”
“I have refused the approaches by Viavi multiple times, and it’s as clear as that,” Lamonde told RCR Wireless News. He says he would treat any acquisition offer the same way that he is treating Viavi’s, as he simply does not want to sell the company he founded. Lamonde calls Viavi’s pursuit strategy “a bit aggressive” and “a conscientious decision to try to create noise on the line during the offer that’s on the table” and frustrate EXFO’s minority shareholders.
“They knew absolutely well that I would refuse them,” he adds. “But at the end of the day, it’s just noise on the line.”
Asked to respond to Lamonde’s public comments, Viavi provided a statement which said: “Viavi is making our binding proposal of US$8.00/share for EXFO to demonstrate our deep belief in a superior valuation for not only that company, but for the entire test and measurement sector, which is clearly poised to benefit from the evolution of 5G, fiber, high-speed optical and hyperscale for years to come. Mr. Lamonde’s offer of US$6.00 is not only inferior to the Viavi proposal, it also belies the promise of EXFO’s own future success, as reflected in the company’s recently announced fiscal third quarter 2021 financial results, including an increase in bookings of 47.2% year-on-year to US$87 million, with a book-to-bill ratio at 1.20. The strength of the combined teams and technology – including retention of EXFO’s presence in Quebec as a center of excellence – combined with significantly greater scale and financial resources, would enable strong investment in growth while achieving greater operating leverage than either company could do alone.”
In its own statement, the EXFO board of directors has said that it does not consider Viavi’s $8 per share offer to be a “superior proposal” because the transaction cannot be completed, given Lamonde’s resolute opposition. Just yesterday, Viavi put out yet another public statement saying that it was “once again extremely disappointed” that its latest offer was rejected and urging the board’s special committee — from which Lamonde and current CEO Philippe Morin have recused themselves — to “uphold their fiduciary duty.”
Viavi’s statement, while stopping short of threatening legal action, argues that EXFO’s board is not living up to its fiduciary duty to maximize shareholder value and says that Viavi “is committed to taking the necessary steps to ensure that its superior binding proposal is evaluated on its clear and strategic merits.”
“We do not understand how the EXFO Special Committee could reasonably … continue to recommend and facilitate an inadequate and coercive Going Private Transaction,” Viavi said, adding that its offer is “exceedingly more favorable from a financial point of view.”
During the special meeting on August 13, the minority shareholders of EXFO will be able to vote on whether or not to take Lamonde up on his $6-per-share, go-private offer — the vote must be 50% of the minority shareholders, plus one, Lamonde explains. “The only thing that’s on the table is whether or not they prefer to see EXFO remain public or return to go-private,” Lamonde says. “I’m absolutely fine with both options. But there is no option for EXFO to be acquired.”
He says he has been contacted by EXFO customers — who frequently dual-source and also use Viavi’s solutions — and says that they have expressed concern about competition and pricing if EXFO were to be removed from the test and measurement ecosystem. “To me, what’s very important is that I want to keep EXFO as a strong voice in the market,” Lamonde says, calling EXFO an “innovation engine” pushing the industry and its competitors forward as they face new challenges in deploying and assuring ever-faster wired and wireless network technologies.
“I’m an entrepreneur at heart, and I love to do what I’m doing, and that is to build this business,” he says. “That is the intent I have.”
