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Elliott and other activist investors take on big tech

for the boss And boards, dealing with weird activist shareholders is a given. It is unusual to compete with a group of such gadflies. In October, activist hedge fund Starboard Value bought a “significant” stake in customer management software maker Salesforce, arguing that the company had failed to translate its leading market position into healthy profit margins and needed to cut costs. On January 4, Salesforce officially announced that it would lay off 8,000 people, or 10% of its workforce. That’s not enough to repel the attack. On January 22, Elliott Management, a member of the dreaded Gyza, also acquired a multibillion-dollar stake in the company. The next day, it was reported that Inclusive Capital had been buying Salesforce stock.

So far, hedge funds have rarely voiced their demands publicly. Deeper cost cutting is almost certainly one of them. Salesforce’s sales and marketing costs accounted for 42% of its revenue, compared to Salesforce’s 28% and 19% sap and Oracle, respectively, are the two major competitors (see Figure 1). Activists could also push for the spinoff of one of Salesforce’s recent high-priced acquisitions, such as business software company MuleSoft, data visualization tool Tableau or workplace messaging app Slack.

Salesforce isn’t the only tech company suffering from this annoyance. Last July, it was revealed that Elliott had a roughly 9% stake in digital message board Pinterest; by December, it had climbed to the board. In October, Altimeter, the activist fund that owns a stake in Meta, called on the social media empire to lay off staff and scale back its investment in the metaverse.November TCI CorporationAnother such agency has asked Alphabet to lay off staff, cut high salaries and cut bets unrelated to its core search business, such as self-driving cars.

All this buzz comes after a few quiet years. Between 2018 and 2021, the number of activism worldwide has steadily declined. According to investment bank Lazard, in 2022, as the stock market plummeted, activists reinvigorated and launched 36% more attacks than the previous year.

Silicon Valley, which has gone on an uncontrolled expansion spree amid the pandemic tech boom, is a particularly tempting target. As Altimeter noted in an open letter to Meta, “It’s a little-kept secret in Silicon Valley that companies from Google to Meta to Twitter to Uber can achieve similar levels of revenue with fewer people.” Investor sentiment has also turned sour on tech stocks, whose promise of profitability in the distant future looks less attractive today as interest rates rise.High technical content Nasdaq The index is down 30% from its late 2021 high, a drop of small&P US Large Companies 500 Index.This has allowed activists to snap up deals at discounted prices, notes Gregory Rice BCG, a consulting firm. In 2022, 21% of global activism will target technology, up from 14% in 2018-21 (see Figure 2). In the US, last year’s figure was 27%.

Dual-class share structures like Meta and Alphabet allow the founders to retain a majority of voting power, providing some protection for the target. Still, even founder-controlled companies must keep shareholders happy. Meta’s share price took a big hit after it rejected Altimeter’s call to unwind its metaverse plans. Two weeks later, the company announced it was laying off 11,000 workers, or 13% of its workforce, and would cut $2 billion, or about 5%, of capital spending in 2023. On January 20, Alphabet also said it would lay off six employees. percentage of its workforce.

Contrary to their short-term opportunistic reputation, activist investors can help boost long-term returns. A study of 2,000 activist campaigns concluded that target companies outperformed competitors on average after five years in terms of stock price and operating metrics. Both tech giants, Microsoft and Apple, have had constructive exchanges with activists in the past. In 2013, Apple was pushed by veteran gadfly man Carl Icahn to return some of its growing cash hoard to shareholders.Microsoft’s renaissance over the past decade has been helped by the appointment of another activist, Mason Moffitt, to the board at the beginning of Satya Nadella’s tenure. CEO Year 2014.

Whether or not other tech giants follow the compromising example of Apple and Microsoft, they may have realized that activists haven’t gone away. After Alphabet announced layoffs, TCI Corporation Sent it another letter saying they were too humble.

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