Third Avenue Management Comments on Tellabs
The Fund added to its position in Tellabs (TLAB) Common during the quarter,reinvesting a small portion of the cash received from the substantial dividend the company paid at the end of 2012. As discussed in the October 31, 2012 shareholder letter,Third Avenue filed a Form 13D in November 2012 to reserve the right to meet with management, the Board and other shareholders in an attempt to enhance shareholder value. This filing followed disappointing third quarter financial results and guidance. Third Avenue is usually a passive and supportive long-term investor, but, in this case, we determined that being more active was appropriate and likely to lead to a better out come for our investors. Since our 13D filing, there have been several positive developments, including the following:
• Board. In December, the company added Mikel Williams and Dennis Strigl to the board. Mr. Williams, who was nominated by activist shareholder Dialectic Capital Management, was previously the CEO of DDi Corp, a producer of printed circuit boards,from2005 until itssalein 2012.Mr. Strigl had a long and distinguished career at Verizon (Tellabs' largest customer), serving as both Chief Operating Officer and CEO of Verizon Wireless. Third Avenue interviewed both candidates prior to their appointment. On May 1, 2013 Alex Machinsky was elected to theBoard atthecompany's annualmeeting. Mr. Machinsky, a seasoned founder and executive of telecom and internet companies and the holder of more than 50 technology patents, was nominated by Third Avenue. Tellabs has now added five new directors since the beginning of 2012, including two nomineesfromThird Avenue and two from Dialectic.
• Capital structure. Tellabs paid a $1 per share ($368 million) dividend before yearend and announced the resumption of a $225 million share repurchase plan. Even after the dividend and resumption of the share repurchase plan, the company has a strong financial position with $572 million in cash and short-term investments and no debt.
• Restructuring. In January 2013,Tellabs announced a 300 person headcount reduction (12% of the workforce), and the discontinuance of the 9200, a largecapacity edgerouter. Management appears to be making significant progress reducing costs.
Although the revenue outlook remains quite challenged, the company's recent actions have resulted in a much leaner organization and improved cash flow. The shares continue to be attractively priced at only a modest premium to the company's $572 million of cash ($1.60 per share).We are pleased with the recent changes to the Board and believe the company still has several options for generating improved shareholder value.
From Third Avenue Management's semi-annual 2013 commentary.