The Divestiture Play: Why Viavi Solutions is Poised to Surge on the Keysight-Spirent Deal

The $1.46 billion acquisition of Spirent Communications by Keysight Technologies has long been framed as a strategic win for the test-and-measurement giant. But buried in the deal's fine print is a far more compelling opportunity: the mandated divestiture of Spirent's high-speed Ethernet and network security businesses to Viavi Solutions (VIAV). This forced sale, worth $425 million, isn't just a regulatory hurdle—it's a goldmine for Viavi, positioning it to leapfrog rivals in a $40+ billion network infrastructure market. For investors, this is a moment to act before the deal's closing, which now looms by late Q2 2025.

The Divestiture: A Catalyst for Viavi's Market Dominance

When regulators forced Keysight to offload Spirent's Ethernet and security divisions, they didn't just split a company—they reshaped the industry's DNA. Viavi, often overlooked as a mid-cap player, now inherits $180 million in annual revenue from Spirent's prized businesses, including its 800G Ethernet testing tools and AI-driven security platforms. These assets are critical for validating next-gen data centers, 5G networks, and cloud infrastructure—sectors growing at 12% CAGR through 2030, according to MarketsandMarkets.

The strategic brilliance here is twofold:
1. Immediate Scale: Viavi's Network Enablement segment, which generated $179 million in Q2 2025, will now gain Spirent's expertise in protocol validation for hyperscalers, directly competing with giants like Cisco and Juniper.
2. Margin Expansion: The deal is accretive to EPS within 12 months, thanks to Viavi's tax efficiency (they'll use $234M in operating cash flow to offset the $410M cash payment) and synergies in R&D and distribution.

Why the Market Has Underestimated Viavi

Viavi's stock trades at a P/S ratio of 0.87x (based on trailing revenues of $1.0 billion), well below the 1.3x industry average for network testing peers. This discount ignores two critical factors:
- Undervalued Growth: The Spirent assets alone add ~10% to Viavi's addressable market, yet the stock hasn't priced in this upside.
- Operational Leverage: Viavi's net margin of 3.36% is set to rise as the Spirent business, with higher gross margins, scales.

Compare this to Keysight, which trades at a P/S of 4.1x—a premium justified only if it can fully integrate Spirent's service assurance tools. But Keysight's focus on semiconductor testing and cloud infrastructure leaves the $2.3 billion network security testing market wide open for Viavi.

Risks? Yes. But the Rewards Outweigh Them

Critics will point to execution risks: delays in China's regulatory approval (the deal's “long pole”) or integration hiccups. But Viavi's $512 million in cash and a current ratio of 2.3x give it flexibility to navigate these hurdles. Even a six-month delay—unlikely given the DOJ's approval—would still leave Viavi with a $15M contingent payment and first-mover advantage in 800G Ethernet testing.

Meanwhile, Keysight's exposure to Spirent's slower-growth sectors (like legacy telecom assurance) is minimized, allowing it to focus on its $10 billion semiconductor testing business, which commands 35%+ margins.

The Play: Buy Viavi Now, Before the Deal Closes

The catalyst timeline is clear:
- Q2 2025: Divestiture closes concurrently with Keysight-Spirent.
- Q3 2025: Viavi begins cross-selling Spirent's tools to its 5G and hyperscaler clients.
- 2026: EPS accretion materializes, driving a multiple expansion to 1.2x P/S.

At current prices, Viavi offers a 25% upside potential to its $14 median price target. Bulls like Rosenblatt (who upgraded to $16) see a path to $20 if Spirent's AI-driven security tools gain traction with cloud providers.

Action Items for Investors:
1. Buy the Dip: With shares down 10% YTD on macro jitters, the risk/reward favors a long position.
2. Set a Target: Aim for $15 by year-end, with a $18+ ceiling if China's SAMR approves Keysight's acquisition by July.
3. Monitor Synergies: Track Q3 2025 revenue guidance for Spirent's contribution and gross margin improvements.

Final Analysis: A Rare “Win-Win” in Tech

The Keysight-Spirent deal isn't just about consolidation—it's a strategic reallocation of assets to the company best positioned to capitalize on it. Viavi's valuation discount, combined with its post-divestiture growth runway, makes it a must-own name in network infrastructure. Investors who act now will capture a 15-20% return in 12 months—or more if Viavi's shares finally get the attention they deserve.

The clock is ticking. The divestiture is coming. Don't miss the train.