Wednesday, November 12, 2014

Juniper CEO Gets Fired – Does It Even Matter?

Juniper CEO Shaygan Kheradpir has been replaced after less than a year. Don't expect much from JNPR stock for a while.

This past Sunday night, the board of directors at Juniper Networks (JNPR) unanimously decided at an emergency meeting to replace the company’s CEO, Shaygan Kheradpir. While the specifics surrounding the actual events that led to the board’s decision remain under wraps, a company spokesperson provided a few vague, but intriguing, details.

Apparently, Kheradpir’s removal from office was due to his mishandling of one of JNPR’s largest accounts. Moreso, Forbes reported that Kheradpir offended and potentially jeopardized the company’s relationship with that customer, which was described as being in JNPR’s top 10%.

As a consequence of his termination, Kheradpir will have to return approximately $2.7 million of his $5 million signing bonus.

The board’s decision came as a shock, and the Street reacted with guarded concern as JNPR stock fell 6% since Monday. With so few facts about the incident available to analysts and shareholders, it’s no surprise that investor confidence began to waver in the hours following the announcement.

Firing a CEO is not a simple process, nor is it a common occurrence under circumstances such as these. That being said, Shaygan Kheradpir must have committed a flagrantly egregious violation of JNPR policy and values to warrant immediate removal.

Juniper CEO — What Happened?

It’s difficult to imagine an executive like the Juniper CEO level being so far out of touch with the company’s biggest customers, or so careless with his words and oblivious to his customers’ personalities, that he would unintentionally insult them.

Regardless, the fact is that a new CEO is now in place — Rami Rahim, who was JNPR’s executive vice president and general manager. JNPR stock will likely remain volatile for at least the remainder of the trading week, or until more details of the executive’s departure are released. JNPR has stated, however, that this incident will have no effect on the company’s future business or financial statements. It would seem, then, that even if Shaygan Kheradpir did offend one of JNPR’s biggest customers, his behavior wasn’t insulting enough to cause that customer to leave.

The company has been struggling for some time to boost share prices, which is what led to Kheradpir’s hiring in the first place. However, during his tenure as CEO, JNPR stock fell 4%. The Londoner had only been with the company since January, making Rahim JNPR’s second CEO in less than a year.

Sudden changes in leadership — especially when surrounded by mysterious scandals — often lead to share price declines, and JNPR stock isnt an exception. Shares fell approximately 1.5% during afterhours trading as investors dumped positions ahead of a possible detrimental revelation.

Shaygan Kheradpir’s ousting only adds to already-weakened investor confidence stemming from the ongoing Securities and Exchange Commission investigation for possible violations of the Foreign Corrupt Practices Act, despite the company’s assurance that the events are unrelated.

Outlook for JNPR

Will new Juniper CEO Rami Rahim, who has been working for JNPR for more than 17 years and was the company’s 32nd employee, be able to turn the tides and pull JNPR stock out of its proverbial landslide?

Year to date, shares of JNPR stock are down more than 8%. When Shaygan Kheradpir was originally named as Juniper CEO, there was debate over bringing in the outsider in favor of Rahim. On Monday, JNPR’s chairman of the board, Scott Kriens, recently described Rahim as a talented leader and went on to say, “We couldn’t be more excited about his ability to lead this company.”

It’s hard not to be skeptical of the chairman’s comments, considering that Rahim was passed over less than a year ago for the Juniper CEO position. If everyone is so supportive of Rahim’s new role, why wasn’t he given the job in January? Was Shaygan Kheradpir just that much more impressive or qualified? (Seemingly not.) Or, perhaps Rahim still would not have been JNPR’s first choice, but under the circumstances he was simply the easiest choice?

At least a few analysts seem to have confidence in Rahim’s new role as Juniper CEO. Wells Fargo, William Blair, and Nomura have increased ratings for JNPR stock, as all three firms issued price targets between $25 and $27 per share. The consensus is that Rahim will simply continue with the company’s existing plans to reduce its workforce by 6% and focus on expanding high-growth segments.

All things considered, it’s going to be quite a while before the dust settles and the results of JNPR’s long-term revitalization plans become apparent. Don’t expect anything impressive from JNPR stock for at least another year, as the new Juniper CEO has a long road ahead of him. That road is full of obstacles including everything from the Kheradpir scandal to the SEC corruption investigation to building pressure from activist investors such as Elliott Management.

With any luck, Rahim will be able to stay the course and, if nothing else, prevent JNPR stock from sliding further.

This article originally appeared on InvestorPlace.com (11/12/2014)