Foglamp Capital Urges Gigamon Inc. to Explore Strategic Alternatives

Foglamp Capital believes Gigamon (NYSE:GIMO) is significantly undervalued, and that the strategic review process that Elliott Management has recommended should unlock significant value.

Foglamp Fund, LP first acquired shares of Gigamon in January 2017, after the company pre-announced that it would miss its Q4 guidance. Foglamp has since built a significant position in the stock, and as of May 5, 2017, GIMO stock comprised 14.9% of Foglamp Fund, LP’s unaudited NAV.

Foglamp has conducted significant research to ascertain both the quality of the product and the strategic value of Gigamon’s assets to potential acquirers. Foglamp interviewed a broad array of customers across the telecom, cloud service provider, financial services, consumer products, and professional services verticals. Foglamp also interviewed distributors and network engineers that design networks for Fortune 100 companies.

We learned that Gigamon has an outstanding technological reputation and that its products are deeply integrated into the network systems of large enterprises. Invariably, CIO’s and network engineers said it was inconceivable to replace Gigamon’s systems with that of a competitor and considered Gigamon’s systems an important part of their long-term network roadmap. There was a broad perception that deploying Gigamon’s systems was saving its customers money and making their network applications run better. Many customers, several distributors and certain competitors noted that they were surprised that Gigamon was still a standalone company and that they had not already been acquired by a larger networking company.

We view Gigamon today as a significantly undervalued business, in large part because the existing corporate structure is impeding shareholder returns.

Our view on Gigamon’s management is nuanced. We believe Paul Hooper’s (CEO) and Shehzad Merchant’s (CTO) execution on technology and product roadmap has been outstanding. Less than four years ago, Gigamon and Ixia (the two leaders in network visibility) had a comparable market share in the visibility space. Today Gigamon’s business is almost 2.5x the size of Ixia. The proof of Gigamon’s product excellence lies in the fact that more than 80 of Fortune 100 companies are Gigamon customers.

However, Gigamon’s poor corporate governance has been explicitly impeding shareholder returns. From Q4 2013 to Q2 2017, Gigamon’s diluted share count will have increased by 33% (approximately 7% annualized) because of shares issued to the company and its board (stock based compensation). There has also been significant turnover in the management suite. In the last 5 years, GIMO has hired three CFOs, three CMOs, and is about to hire its third Head of Sales.

Gigamon’s corporate governance record has led the proxy advisory firm ISS to rank Gigamon in the 100th percentile of worst companies that they cover. ISS has also previously withheld re-election recommendation for two of Gigamon’s board members (Gigamon’s Chairman and its co-founder).

A link to Foglamp’s initial investment memo from January 2017 is below: https://www.dropbox.com/s/zw7u6g5m5tfrfwm/Foglamp-GigamonStatement-5.8.2017.pdf?dl=0

About Foglamp Capital

Foglamp Capital is a dislocation event driven investment firm. Foglamp manages a concentrated portfolio of investments in high quality assets that have undergone an idiosyncratic dislocation event.

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