Zebeth Media Solutions

activist investors

A brief history of activist investors in tech and the role they play • ZebethMedia

On Tuesday, activist investor Starboard Value revealed a significant stake in Salesforce, sending the company’s stock climbing more than 7%. A hedge fund founded in 2002 by Jeffrey Smith and Mark Mitchell, Starboard has a history of affecting change at major companies, spurring the spinning off of media startup Patch from AOL in 2014 and the replacement of the entire board of directors at Darden Restaurants, the company that owns Olive Garden and Longhorn Steakhouse. Activist investors — typically specialized hedge funds that buy significant minority stakes in publicly traded companies with the goal of changing how they’re run — have become more active within the tech sector in recent years. According to an analysis by Bloomberg Law, investor activists launched more campaigns in tech during Q2 2022 than in any other sector. But how many of these activists have been successful in achieving their aims? It depends on how you define success. A Harvard, Columbia and Duke University study published in 2013 looked at 2,000 interventions by hedge fund activists from 1994 to 2007. It found that, in the short run, stocks tend to rise around 6% when activist investors get involved. And the upswings aren’t temporary. In the five years after activist investors show up on the scene, the stock prices of companies targeted by them tended to hold onto the initial gains — even when the activists employed hostile tactics. Consider the split-up of Motorola’s business in 2008, a move advocated by activist investor Carl Icahn. In 2011, owners of Motorola held stock worth over 20% more than it was before the split — much of it as a result of Google’s deal to buy Motorola’s mobile-focused spinout Motorola Mobility. As Icahn predicted, divvying up the company made the individual pieces more enticing. That’s not always the case, however — as the past decade or so shows.

Starboard Value reportedly taking ‘significant’ stake in Salesforce • ZebethMedia

Activist investor Starboard Value announced this morning that it was taking a “significant stake” in Salesforce, per CNBC. A presentation on Starboard’s website confirmed the firm’s interest in Salesforce, as well as Wix and Splunk. The presentation looks at the company’s financial situation and concludes that it could be giving investors a better return. On the positive side, Starboard likes the company’s refreshed executive team with Bret Taylor as co-CEO. It also likes Salesforce’s ambitious $50 billion revenue target for fiscal year 2026, but Starboard was less pleased with Salesforce’s combined growth and operating margin target of 42%. It claimed that Salesforce’s peers’ average is over 50%, and the implication is that it wants to see Salesforce closer to — or ahead of — its peer group. Further, Starboard sees a company that has much greater scale than peer cloud companies like Workday and ServiceNow, its comparison companies. Starboard claims in the investor presentation that “despite expecting to grow slower than [these] peers, [it] is only targeting operating margins in-line to below its much smaller peers.” “On a growth + margin basis, Salesforce significantly lags these companies and the peer set,” the company wrote in its presentation. It believes that if Salesforce “generates incremental margins that are in-line with peer levels as it grows towards $50 billion in FY2026 revenue, margins would significantly exceed the Investor Day target.” And that would increase free cash flow per share over the next several years as it approaches that $50 billion revenue mark. Salesforce issued a rather staid reaction to the news of Starboard’s move: “We are committed to acting in the best interests of our shareholders and are focused on continuing to execute on our strategy outlined at Dreamforce,” a company spokesperson told me. Salesforce stock is up over 6% in trading this morning on the news. This is a breaking story. We will update the story with additional information as it becomes available.

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