Identifying Value in Viasat's Business: Activist Carronade's Perspective

Viasat Inc: An Overview

Viasat Inc is entrenched in the dual realms of global communications and defense technology, navigating through an intricate mesh of secure communications, worldwide connectivity, aerospace, and defense advancements. The firm is split into two principal divisions: Communication Services, focusing on services like fixed broadband, government-related communication, maritime links, and in-flight connectivity; and Defense and Advanced Technologies (DAT), which offers state-of-the-art platforms for information security and cyber defense, alongside innovations in space, mission systems, and tactical networking.

Insights from Carronade Capital Management

Carronade Capital Management LP is a diverse investment entity renowned for taking strategic approaches in situations rich with catalysts. Founded by Dan Gropper, the firm has built a reputation for its engagement in both credit investment and shareholder activism, with several team members boasting experience from Elliott Management.

The Call for Separation

In a move aimed at unlocking potential value, Carronade has urged Viasat to consider separating its DAT branch, either through a public spinoff or an IPO. This division currently encompasses a quarter of Viasat's revenue, yet holds substantial growth potential, thanks to its cutting-edge technology offerings.

Understanding the Business Landscape

Viasat is caught between its legacy satellite operations and the burgeoning DAT sector. Although challenged by new market players like Starlink, which threaten its broadband segment, Viasat continues to exhibit promising growth in other areas like government and in-flight communications, with significant contractual protections to safeguard these relationships.

The misunderstood DAT branch is overshadowed by Viasat's older business segments, despite being a lucrative avenue with impressive EBITDA margins and substantial prospects in future-facing defense and technology markets. Carronade argues the misvaluation is stark, pointing out that while DAT rivals trade at high EBITDA multiples, Viasat remains undervalued.

Strategic Benefits of a DAT Spin-off

By decoupling the DAT division, Carronade posits that Viasat could potentially double its market value, reducing the negative drag currently exerted by its satellite narrative. This move promises to highlight the hidden value in DAT's cutting-edge solutions, like its device-to-device platform aimed at enhancing connectivity for smartphones and IoT devices.

Carronade's projections suggest the stand-alone DAT could command valuations as high as $16.2 billion, significantly outpacing Viasat's current enterprise value. Coupled with structured value from the Communications segment, this restructuring could elevate Viasat's market appeal and stock performance.

Resonating with Management

While Carronade typically refrains from aggressive activist tactics, its compelling insights have aligned with Viasat's own deliberations on potentially divesting parts of DAT. This shared vision increases the likelihood of strategic shifts that could capitalize on existing strengths while minimizing weaker segments.