Activist Carronade spots a hidden gem in Viasat’s business. How the firm may unlock value

Activist investor Carronade Capital Management is pressing Viasat (VSAT) to separate its high-growth Defense and Advanced Technologies (DAT) business via a spin-off or IPO, asserting the market significantly undervalues Viasat by mischaracterizing it as a declining legacy satellite company. Carronade highlights DAT's double-digit revenue growth and 28% EBITDA margins, which contrast sharply with the company's overall ~6x EBITDA valuation compared to DAT peers trading at 20x-80x. This proposed separation aims to unlock substantial shareholder value, with Carronade projecting a potential 76% to 304% upside from Viasat's current share price of ~$25.62.

Analysis

Activist investor Carronade Capital Management has presented a compelling sum-of-the-parts valuation case for Viasat Inc. (VSAT), arguing the company is significantly undervalued due to a market misperception. The market appears to be penalizing the entire company based on its legacy fixed broadband business, which is declining with revenue down 27% year-over-year, and perceived threats from competitors like Starlink. However, this view overlooks the robust performance within Viasat's other Communications segments, including Government (25% YoY growth), Inflight Communications (22% YoY growth), and Maritime (11% YoY growth). More critically, the market is failing to properly value the Defense and Advanced Technologies (DAT) business, which accounts for 27% of revenue and boasts best-in-class 28% EBITDA margins and double-digit growth. Carronade highlights that while Viasat trades at approximately 6x EBITDA, peers of the DAT segment with weaker growth and margin profiles trade at multiples ranging from the mid-20s to over 80x EBITDA. The proposed solution is a spin-off or IPO of the DAT business, which Carronade estimates could be worth $6.3 billion to $16.2 billion on its own, compared to Viasat's current total enterprise value of around $8 billion. This strategic separation, combined with a conservative valuation for the remaining Communications business and a $1 billion legal settlement, implies a potential share price of $48.93 to $112.49, a 76% to 304% upside. The activist's case is strengthened by Viasat management's prior signaling that it is already considering a sale of parts of the DAT business, suggesting a potential alignment of interests.

Key Decisions for Investors

• Consider the activist engagement by Carronade Capital as a primary catalyst for unlocking shareholder value, as the proposed spin-off of the Defense and Advanced Technologies (DAT) business could force a market re-rating of Viasat.
• Investors should analyze Viasat as a sum-of-the-parts story, separating the high-growth, high-margin DAT business from the mixed-performance Communications segment to better assess the valuation discrepancy highlighted by the activist.
• Monitor company communications closely for any developments regarding the potential separation of the DAT business, as management's willingness to proceed is the key variable for realizing the projected 76% to 304% upside.
• Evaluate the risk that the negative narrative surrounding the legacy broadband business and competition from Starlink continues to weigh on the stock if a corporate separation is not executed, potentially limiting near-term performance.