Why Gigamon Stock Soared Today

By Evan Niu, CFA Markets Fool.com

What happened

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Shares of Gigamon (NYSE: GIMO) have soared today, up by 17.9% as of 1:23 p.m. EDT, after activist investor Elliott Management disclosed a new stake in the network visibility company.

So what

Elliott Management now has a 15.3% stake in Gigamon and makes it clear that it intends to push management toward selling the company. Elliott says that it believes Gigamon shares "are significantly undervalued and represent an attractive investment opportunity," while it intends to "engage in a dialogue with the [Gigamon] Board of Directors regarding opportunities to maximize shareholder value."

Image source: Getty Images.

Now what

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The activist investor adds that it plans to "communicate with ... [Gigamon's] management and Board about a broad range of operational and strategic matters, and intend to encourage the issuer to undertake a strategic review process including, without limitation, a potential sale of [Gigamon] or certain of its businesses or assets, in which [Elliott Management] may participate, as a means of enhancing shareholder value."

Shares were cut in half between November 2016 and February 2017, in part due to the company issuing a disappointing preliminary earnings report in January. The first-quarter earnings release just a few weeks ago similarly left a bit to be desired; shares fell 12% on the report. Meanwhile, there has been considerable consolidation within the sector in recent years, so it's conceivable that Gigamon and Elliott could potentially find a buyer.

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Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.