In Short:
Viavi Solutions is considering a new bid for Spirent Communications if Keysight Technologies’ takeover fails. Keysight’s $1.5 billion cash offer is facing regulatory scrutiny, with Spirent shares trading lower than expected. Viavi would need UK regulatory approval to bid again due to rules banning it for 12 months. Spirent’s revenue has declined amid economic slowdown and customer hesitance related to the takeover.
By Amy-Jo Crowley
Viavi Solutions, a U.S. IT communications specialist, is evaluating the possibility of launching a second bid for Spirent Communications, a telecoms testing group, contingent upon the outcome of Keysight Technologies‘ ongoing acquisition attempt. Sources familiar with the matter indicated that if Keysight’s takeover fails, Viavi may pursue Spirent again.
Current Acquisition Landscape
In March, Keysight made an all-cash offer of $1.5 billion for Spirent, eclipsing Viavi’s previous bid. This acquisition is currently undergoing regulatory approval.
Despite this, Spirent’s shares are trading at a 14.5% discount to Keysight’s offer price of 201.50 pence, suggesting investor skepticism regarding Keysight’s ability to secure competition approval, according to two anonymous analysts.
Regulatory Factors
Under UK takeover regulations, Viavi would require clearance from the UK takeover regulator before making another bid, as they are restricted from doing so for a year following the lapse of their previous offer in May.
At the time of Keysight’s bid, their offer represented a substantial premium of 85.9% over Spirent’s closing share price of 108.4 pence on March 4, significantly higher than Viavi’s earlier premium of 61.4%.
Future Expectations
Keysight has expressed confidence that its acquisition of Spirent—expected to yield “complementary” products and “strategic” synergies—will receive approval by the end of April next year.
In August, Spirent announced that both it and Keysight were collaborating with U.S. and European authorities to expedite the necessary anti-trust approvals.
Additionally, Keysight has committed to a co-operation agreement that includes a ‘Hell-or-High-Water’ clause, underscoring their determination to achieve regulatory clearance.
Competitive Concerns
Viavi has previously stated that its business has “limited overlap” with Spirent, arguing that Keysight’s proposed merger could restrict customer options. Analysts warn that regulatory bodies might resist the merger, as it could result in Keysight controlling over 80% of the high-speed Ethernet telecommunications testing market, alongside overlapping products in security and navigation.
Given these concerns, analysts suggest Keysight may be required to divest certain assets to obtain regulatory approval.
A third source familiar with the situation indicated that the acquisition discussions between Keysight and Spirent are proceeding as expected, with Spirent contemplating possible asset sales, including its Ethernet testing segment, which constitutes over 55% of its revenue.
Market Impact and Revenue Insights
The prevailing discount in Spirent’s share price reflects a broader trend of increasing regulatory scrutiny surrounding mergers and acquisitions. Spirent has reported a 12% decline in revenue, totaling $197.3 million in the first half of 2024, attributing this downturn to reduced customer expenditure amid ongoing economic uncertainty. The company anticipates this trend will persist into the latter half of the year.
Furthermore, customer indecision following the news of the takeover has contributed to delays in contract signings, impacting Spirent’s operational flow.
