Infinera's (INFN 1.29%) stock tumbled about 35% over the past month on a triple whammy of bad news: Its first-quarter earnings guidance missed analysts' expectations, it announced a new $200 million debt offering, and the novel coronavirus (COVID-19) pandemic crushed markets worldwide.

However, a new threat recently emerged after Oaktree Capital (OAK) disclosed a 13.2% stake in Infinera and pressured the company for seats on its board. Could Oaktree's demands precede a major activist move -- or a big sale?

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How Oaktree gained a big stake in Infinera

Oaktree originally owned a major stake in Coriant, which Infinera acquired in late 2018. Oaktree gained 10.5 million shares of Infinera after the acquisition, and subsequently boosted its stake to 24.2 million shares.

A year ago, Oaktree agreed to extend the lockup period on the 10.5 million shares it originally received by 12 months to April 1, 2020. After that date passes, Oaktree could sell that stake -- which equals nearly 6% of Infinera's outstanding shares.

Oaktree is now pushing Infinera for seats at the table, but it's unclear what the firm actually wants the company to do. In its 13D filing, Infinera claims that Oaktree expressed a "strong belief that meaningful shareholder representation is immediately required" to ensure that Infinera's board is "acting in the best interests of its shareholders."

Infinera stated that it was working with Oaktree toward a "cooperative outcome" and an "amicable resolution," but Oaktree could still take "certain actions" during its upcoming annual meeting. Infinera expressed hope that "any such steps will prove unnecessary," but didn't reveal Oaktree's actual grievances or plans.

Is Oaktree gearing up for an activist move or a big sale?

Oaktree notably increased its position by 3.2 million shares in four separate purchases as the market was crushed between March 16 and 18. Its purchase prices ranged from $3.83 to $4.39 throughout that period, so Oaktree could already sell those shares at a profit.

However, Oaktree's purchase of those shares ahead of the expiration of the lockup period on its 10.5 million shares suggests that it's gearing for an activist move. Infinera has made some questionable moves over the past few years, and an activist move could be justified.

What were Infinera's biggest mistakes?

Between 2016 and 2018, Infinera focused too heavily on the long-haul WDM market as enterprise customers prioritized shorter-range metro and DCI solutions. Infinera then acquired Coriant to boost its exposure to shorter-range markets, but overestimated those gains by a wide margin.

Servers in a data center.

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Infinera didn't have any long-term debt in 2017, but that figure rose to $266.9 million in 2018 and climbed another 21% to $323.7 million in 2019. Its latest debt offering of $200 million -- which blindsided investors because it occurred without any prior warning -- will result in even higher debt levels in 2020.

Infinera claims it's taking on more debt to strengthen its pipeline of 800G and XR products. However, Infinera's management often glosses over the fact that bigger players like Ciena are also launching similar products.

Can Oaktree convince Infinera to shape up?

Infinera's mistakes are arguably weighing down the stock, which looks cheap at less than one times its annual revenue, and casting doubts on its ability to profit from the surging demand for faster fiber connections and cloud services.

Therefore, it's reasonable for Oaktree to pressure Infinera CEO Tom Fallon, who has led the company for ten years, to make some concessions and strengthen its business ahead of the ramp-up of its 800G technologies in 2020 and 2021.

However, there's also the possibility that Infinera's management doesn't budge. If that happens, Oaktree could dump its entire stake and gut the stock. In short, Oaktree's stake could be either a blessing or a ticking time bomb for Infinera's investors.